The Central Bank of Nigeria (CBN) has confirmed the removal of the ±2.5% limit previously set on interbank foreign exchange (FX) transactions. Effective immediately, this change was announced in a circular published on February 8, 2023 and addressed to all authorized dealers. The CBN also revealed that the earlier restriction on the disposal of interbank proceeds has been abandoned.
The order, endorsed by the Director of CBN’s Financial Markets Department, Omolara Omotunde Duke, is part of the ongoing FX market reform initiatives by the regulatory authority to foster a price discovery system based on the market. Consequently, the interbank foreign exchange rate will now be influenced by market conditions like demand and supply, steered by the interactions between buyers and sellers.
The bank mandates all authorized dealers to engage in foreign exchange transactions on a “Willing Buyer and Willing Seller” principle, while maintaining high standards in all foreign exchange dealings in Nigeria, including proper price disclosures and transaction transparency.
This policy change follows an earlier move by the CBN on January 31, where it eliminated the rate cap for IMTOs, thereby fostering transparency and market-driven exchange rates in the Nigerian foreign exchange market.
As per CBN’s “Revised Guidelines for the Operation of the Nigerian Inter-bank Foreign Exchange Market” document from June 2016, approved players in the interbank FX market include authorized dealers, authorized buyers, oil and oil service firms, exporters, end-users and any other bodies the apex bank may specify from time to time.
One crucial aspect of the 2016 guidelines was a prohibition on the sale of interbank funds to Bureau-de-Change (BDC).
The latest directive from the Central Bank of Nigeria (CBN), which discontinues previous restrictions on the sale of interbank proceeds, now allows authorised dealers in the inter-bank forex market to sell market proceeds not only to Bureau-de-Change (BDC) operators but to other willing buyers outside the market as well.
In addition, the CBN has mandated authorised dealers to log all completed forex transactions on the designated treasury systems and report them to the relevant market authorities.
In a circular issued on September 13, 2023, document number TED/FEM/PUB/FPC/001/009, the CBN restated that International Money Transfer Operators (IMTOs) and banks must maintain an exchange rate cap of between -2.5% to +2.5% around the previous day’s closing rate in the Nigerian Foreign Exchange Market.
