The Central Bank of Nigeria (CBN) has announced a significant policy change allowing eligible International Money Transfer Operators (IMTOs) to sell foreign exchange (FX) directly in Nigeria’s official market. This directive aims to boost remittance flows through formal channels and enhance the efficiency of the FX market.
New Policy to Improve FX Market Liquidity
Effective immediately, the CBN’s circular emphasizes the bank’s commitment to ensuring smooth operations in the FX market and facilitating greater remittance flows. The circular states that eligible IMTOs can now access naira liquidity through the CBN, which is expected to enhance the timely settlement of diaspora remittances.
The CBN circular, signed by Dr. W. J. Kanya, Acting Director of the Trade & Exchange Department, outlines several key guidelines for IMTOs and Authorized Dealer Banks (ADBs). Key among these is the option for same-day settlement for transactions executed and confirmed before noon on a trading date. This measure is designed to expedite processes and ensure quicker liquidity for remittance beneficiaries. The pricing for these transactions will be based on prevailing NAFEM rates, ensuring transparency and adherence to market benchmarks.
Increased FX Turnover and Market Impact
This move comes at a time when the official market is grappling with FX liquidity issues, with recent turnover on the NAFEM window ranging between $83 million and $390 million. The CBN had previously allowed International Oil Companies (IOCs) to sell 50% of their repatriated export proceeds to authorized forex dealers, a similar strategy aimed at improving market liquidity.
Enhanced Regulatory Framework
The new circular builds on previous regulatory changes. In January 2024, the CBN removed the exchange rate cap for IMTOs, which had previously required them to quote rates within a tight range around the previous day’s closing rate. This was followed by revised guidelines that increased the application fee for an IMTO license from N500,000 in 2014 to N10 million and established a minimum operating capital requirement of $1 million.
IMTOs are now required to submit daily regulatory returns to the CBN, ensuring accountability and transparency. They must also confirm their partner banks and provide standard settlement instructions to facilitate smooth implementation.
Broader Economic Implications
The CBN’s move to allow IMTOs to sell FX directly in the official market is expected to have significant implications. By enabling IMTOs to access naira liquidity directly, the CBN aims to increase the supply of FX in the official market, thereby reducing pressure on the parallel market and helping stabilize exchange rates.
This policy change is part of a broader strategy to double remittance inflows into Nigeria, with a task force reporting directly to CBN Governor Yemi Cardoso. The CBN recently granted 14 new Approvals-in-Principle (AIP) to IMTOs, further bolstering the framework for foreign exchange transactions.
Overall, the new directive is seen as a positive step towards improving the efficiency and transparency of Nigeria’s foreign exchange market, benefiting both remittance recipients and the broader economy.
