In a significant move towards a more liberalized foreign exchange regime, the Central Bank of Nigeria (CBN) has issued a new circular that removes the previous cap on exchange rates quoted by International Money Transfer Operators (IMTOs).
The circular, titled “Removal of Allowable Limit of Exchange Rate Quoted by the International Money Transfer Operators,” dated September 13, 2023, marks a shift in the CBN’s approach to foreign exchange regulation.
Previously, IMTOs were required to quote rates within a permissible range of -2.5% to +2.5% around the previous day’s closing rate of the Nigerian Foreign Exchange Market. However, the new circular now allows IMTOs to quote exchange rates for naira payouts to beneficiaries based on the prevailing market rates at the Nigerian Foreign Exchange Market on a “willing seller, willing buyer” basis.
This policy change follows a circular issued by the central bank addressing suspected cases of excessive foreign currency speculation and hoarding from Nigerian banks. The move is aimed at addressing Nigeria’s forex liquidity challenges and the resultant exchange rate depreciation, which closed at N1,455/$1 on Wednesday, January 31, 2023.
The removal of the -2.5% to +2.5% cap represents a significant step by the CBN towards liberalizing the foreign exchange market in Nigeria. This move is expected to encourage more transparent and market-driven exchange rates, potentially leading to more competitive pricing for customers engaging in international money transfers.
Sources familiar with the policy indicate that the recent changes aim to encourage International Money Transfer Operators (IMTOs) to bring their foreign exchange supply into Nigeria, rather than keeping it abroad. Previously, due to exchange rate limits, diaspora Nigerians using IMTOs to send money home couldn’t sell forex at market rates, leading to reduced forex liquidity in Nigeria. Now, with the removal of these limits, the apex bank believes IMTOs can trade forex at prevailing market rates, including rates similar to the black market, thereby increasing forex inflow into Nigeria.
The CBN’s decision reflects its move towards a more flexible and market-oriented foreign exchange environment, which they believe could contribute to the overall health and efficiency of Nigeria’s financial sector. This development is likely to have implications for the foreign exchange market in Nigeria, affecting both individuals and businesses engaged in international transactions.
