The Central Bank of Nigeria (CBN) has introduced new reforms to the Nigeria foreign exchange (FX) market to address inefficiencies and promote transparency. The reforms, detailed in a circular dated November 29, 2024, mark a notable shift in FX operations, consolidating all FX market windows and redefining participant roles. These updates come amidst currency Volatility and restricted FX access for businesses and individuals. By implementing stricter compliance measures and enhancing reporting transparency, the CBN seeks to restore confidence in the country’s FX system and attract foreign inflows.
However, a major development is consolidating all foreign exchange windows into a unified structure. Previously separated into different windows, such as the Investors & Exporters (I&E) FX Window, SME Window, and Invisible Window, the foreign exchange market will now operate under a single structure. This move aims to simplify operations, reduce inefficiencies, and improve access to foreign exchange for legitimate needs. The central bank hopes to enhance price discovery by eliminating multiple windows and establishing a more stable and transparent FX market. This change aligns with creating a streamlined and efficient system while promoting participant trust.
New policy allows Bureaux de Change into the official exchange window.
Furthermore, the official foreign exchange market has seen licensed Bureaux De Change (BDCs) reinstatement, signalling a significant policy change. For the first time in several years, BDCs can acquire foreign currency directly from Authorized Dealers, though within a monthly limit set by the CBN. This development aims to enhance Retail consumers’ access to foreign exchange, aiding small enterprises and individuals. Nonetheless, the CBN has stressed the importance of rigorous oversight, mandating that every transaction with BDCs must fully comply with their licensing agreements and be documented immediately.
These initiatives are designed to prevent misuse and uphold adherence to regulatory standards. To enhance pricing transparency, the CBN has mandated using the Electronic Foreign Exchange Matching System (EFEMS) for all exchange transactions. This centralised platform will facilitate transparent interbank trading and publish daily foreign exchange rates for public access. The introduction of EFEMS is expected to stop exploitation by prohibiting rate negotiations outside the prescribed framework. Authorised Dealers must adopt a transparent pricing methodology aligned with the prevailing market rate, further ensuring accountability.
Stricter compliance, real-time reporting, and impacts on stakeholders.
Meanwhile, the revised guidelines come with strict compliance and reporting requirements. Authorised Dealers must report transactions within 10 minutes using an API-based system, while BDCs must submit daily reports through automated portals. Commercial and Merchant Banks must adopt real-time reporting systems for improved oversight. Additionally, all market participants must adhere to the Nigerian Foreign Exchange Code of Ethics, with annual attestations required from bank boards, CEOs, and compliance officers. These measures underscore the CBN’s commitment to promoting accountability and stopping unethical practices.
For businesses and individuals, the reintegration of BDCs offers improved access to exchange at retail levels. The centralised pricing mechanism ensures greater transparency, reducing disparities across the window. On the other hand, stricter compliance rules may challenge unlicensed intermediaries. Market participants, including Authorized Dealers and BDCs, must upgrade their operations to meet real-time reporting and transparency requirements. The emphasis on annual ethics attestations signals a change towards greater accountability within the exchange window. The consolidation of foreign exchange windows is expected to enhance investor confidence and attract foreign inflows.
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Therefore, the success of these changes will depend on strict enforcement and effective management of FX liquidity. Challenges such as ensuring adequate FX supply and addressing systemic inefficiencies will be critical in determining the long-term impact of the reforms. The central bank’s revised guidelines represent a bold step toward modernising the market. The apex bank seeks to create a fair and efficient system that supports Economic Growth by consolidating operations, enhancing transparency, and enforcing compliance. While the reforms present opportunities for improved access and investor confidence, their effectiveness will be on diligent implementation and enforcement.