CBN releases new guideline to enhance FX market, diaspora remittances

As part of efforts to strengthen the naira and boost diaspora remittances, the Central Bank of Nigeria (CBN) has introduced new measures on Monday, aimed at improving the efficiency of foreign exchange transactions.

According to a circular issued by the CBN, eligible International Money Transfer Operators (IMTOs) will now have direct access to naira liquidity through the bank’s window.

This initiative is expected to broaden access to local currency liquidity, ensuring smoother and more efficient settlement processes for remittances, the CBN stated.

Under the newly released guidelines, IMTO operators can access the CBN window directly or through their Authorized Dealer Banks (ADBs) to conduct foreign exchange transactions.

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The circular, signed by W.J. Kanya, acting director of the trade and exchange department, mandates that transactions executed before noon on a trading date will be settled on the same day.

The pricing on the CBN portal will reflect the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) rates, aligning with an acceptable market benchmark. The operation of this segment will follow existing protocols for authorized dealers involved in foreign portfolio investment in primary market securities auctions.

All participants, including IMTOs, authorized dealer banks, and the CBN, are required to submit daily regulatory returns. These returns must encompass all pertinent information regarding the sources of funds, ensuring compliance and effective operation of the initiative.

Effective immediately, these measures underscore the CBN’s commitment to maintaining the smooth functioning of the foreign exchange market and enhancing formal remittance channels.

The move is anticipated to significantly boost the liquidity of local currency for diaspora remittances, thus improving the overall efficiency and reliability of the foreign exchange market in Nigeria.

In line with its focus on increasing remittances and naira liquidity, the CBN granted 14 IMTOs an approval-in-principle (AIP) in May 2024, aiming to double foreign-currency remittance inflows through formal channels.

This initiative is designed to increase the sustained supply of foreign exchange in the official market by fostering greater competition and innovation among IMTOs, which in turn is expected to lower the cost of remittance transactions and boost financial inclusion.

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The CBN believes that increasing formal remittance flows will help mitigate the historical volatility in Nigeria’s exchange rate, often influenced by external factors such as fluctuations in foreign investment and oil export revenues.

“This will spur liquidity in Nigeria’s Autonomous Foreign Exchange Market (NAFEX), augmenting price discovery to enable a market-driven fair value for the naira,” said Hakama Sidi Ali, CBN’s Acting Director of Corporate Communications, in a statement announcing the new measures.

CBN Governor Olayemi Cardoso recently disclosed the bank’s ambitious target to double remittance flows into Nigeria within a year. “We are wasting no time driving progress to remove any bottlenecks hindering flows through formal channels permanently.

“We have a determined pathway and a sequenced approach to tackling all challenges ahead, working hand in hand with key stakeholders in the remittance industry,” Cardoso stated.