The Nation Newspaper
A policy shift designed to improve remittance inflow and foreign exchange (FX) liquidity within the official market was yesterday announced by the Central Bank of Nigeria (CBN).
The adjustment allows eligible International Money Transfer Operators (IMTOs) to sell foreign exchange directly on the Nigerian Autonomous Foreign Exchange Market (NAFEM).
The shift came amidst the CBN’s ongoing efforts to encourage the use of formal channels for diaspora remittances.
Hitherto, IMTOs were barred from accessing FX in the official market.
It also came on a day the CBN Governor, Dr. Olayemi Cardoso, declared an end to volatility in the forex exchange (FX) market.
“We do believe that we have more or less seen the worst in terms of volatility,” Cardoso said in a chat with Bloomberg TV.
The CBN announced the policy shift in a circular signed by its Acting Director, Trade and Exchange, Dr. W. J. Kanya.
It (policy) is expected to encourage IMTOs to route transactions through official channels, potentially leading to a substantial increase in recorded remittance inflows.
By allowing IMTOs to sell foreign exchange on the NAFEM Window, the CBN hopes to increase the overall FX supply in the official market.
This could help stabilise exchange rates and reduce pressure on the parallel market.
The CBN circular established guidelines for these transactions.
They include:
- Transactions confirmed before noon will be settled on the same day to ensure faster access to naira for remittance beneficiaries;
- FX will be sold at prevailing NAFEM rates, promoting transparency and adherence to market benchmarks and all participants, including IMTOs and Authorised Dealer Banks (ADBs), must submit daily reports to the CBN to ensure accountability.
The apex bank emphasised that this new market segment will operate under existing regulations for authorized dealers dealing with foreign portfolio investment. This ensures consistency and adherence to established market practices.
The new policy also signifies another step in the bank’s broader strategy to boost remittance inflows.
Other measures introduced previously by the bank include the establishment of a task force with IMTOs to develop strategies for doubling remittance inflows.
Last month, the CBN issued 14 new approvals-in-principle (AIP) to IMTOs, expanding the pool of licensed operators.
The move holds promise for several positive outcomes. By making formal channels more attractive, the CBN expects a significant rise in recorded remittance flows. The sale of FX by IMTOs in the official market will raise FX supply and potentially stabilise exchange rates.
Predicting better days ahead for the FX market, Cardoso expressed satisfaction with the progress made in curbing volatility and suggested that the worst may be over for the naira.
The CBN boss attributed the progress to the decisive actions taken by the apex bank, emphasising the Monetary Policy Committee’s (MPC) commitment to deploying all necessary measures to curb inflation and maintain currency stability.
Cardoso also noted the importance of continuous monitoring and intervention in the market to ensure optimal performance.
“We are also very alive to observing the way and manner in which that market operates and ensuring that it gives the best value that can be accomplished using certain tools,” he told Bloomberg.
His optimism stems from the CBN’s multi-pronged approach to stabilising the naira. Prior to the recent interventions, speculation and manipulation in the FX forward contract market were contributing to naira volatility.
The CBN took steps to address this by tightening regulations, increasing transparency and intervening directly to ease imbalances by releasing FX belonging to foreign companies initially withheld.
Another significant move was the CBN’s decision to allow the naira to trade more freely, reflecting market forces. This move away from a fixed exchange rate system aimed to improve transparency and attract foreign investment.
The CBN also employed various monetary policy tools to influence the exchange rate. The tolls include raising interest rates to make naira-denominated assets more attractive and curb inflation, which actually weakened the currency.
Acknowledging the progress on the exchange rate, Cardoso emphasized CBN’s unwavering commitment to tackling inflation rate which stood at 33.95 per cent last month.
The MPC will likely continue to use interest rate adjustments and other measures to bring inflation under control.