The Central Bank of Nigeria (CBN) has introduced significant policy initiatives aimed at correcting the foreign exchange (FX) market and boosting FX supply. In a bid to curtail foreign currency speculation and improve market transparency, the CBN mandated deposit money banks (DMBs) to adhere to strict limits on their overall foreign currency assets and liabilities. Additionally, the CBN removed the allowable limit of exchange rates quoted by International Money Transfer Operators (IMTOs).
The move comes amidst concerns over the growth in foreign currency exposures of banks and aims to ensure that risks are effectively managed to prevent systemic challenges. Banks are now required to bring their net open position (NOP) within the approved limits immediately, with non-compliance resulting in sanctions and/or suspension from participating in the FX market.
The new regulatory regime also requires banks to adopt adequate treasury and risk management systems to oversee all foreign exchange exposures and ensure accurate reporting. Moreover, banks must maintain an adequate stock of high-quality liquid foreign assets to cover their maturing foreign currency obligations.
Furthermore, the CBN’s decision to remove the allowable limit of exchange rates quoted by IMTOs reflects its commitment to liberalizing the Nigerian FX market. IMTOs are now allowed to quote exchange rates based on prevailing market rates, promoting transparency and market-driven pricing.
Analysts anticipate that the new policy measures will have a positive impact on the FX market, potentially leading to an influx of $4 billion to $6 billion in inflows amid current liquidity challenges. The adjustment in NOP limits is expected to encourage banks to sell excess foreign currency positions, thereby easing pressure on the black market and restoring confidence in the FX market.
While the measures may impact banks’ profitability, currency appreciation resulting from compliance could contribute to overall economic stability. A more stable FX market enhances predictability for businesses, investors, and consumers, fostering a favorable economic environment.
The CBN’s proactive approach underscores its commitment to addressing mounting concerns related to excessive foreign currency speculation and hoarding practices. The impact of these regulatory interventions will depend on the extent to which banks comply with the guidelines and how swiftly the market adjusts.
Overall, the CBN’s measures are aimed at promoting market correction, improving FX liquidity, and restoring confidence in the Nigerian economy.
