The Central Bank of Nigeria (CBN) has introduced a new circular that eliminates the previous cap on exchange rates set for International Money Transfer Operators (IMTOs). Following a circular addressing suspected foreign currency speculation and hoarding by Nigerian banks, this move signifies a shift towards a more liberalized foreign exchange regime in Nigeria.
Dated September 13, 2023, the circular titled “Removal of Allowable Limit of Exchange Rate Quoted by the International Money Transfer Operators” aims to foster a more market-driven approach to determining exchange rates for international money transfers.
In contrast to the previous requirement for IMTOs to quote rates within a range of -2.5% to +2.5% around the previous day’s closing rate of the Nigerian Foreign Exchange Market, the CBN’s new directive allows IMTOs to quote rates based on prevailing market rates. This shift is aligned with the principle of a “willing seller, willing buyer” basis, meaning that supply and demand market forces will determine exchange rates without a fixed cap.
The change comes against Nigeria’s forex liquidity challenges and exchange rate depreciation, closing at N1,455/$1 on January 31, 2023.
Reasons for the Change
Previously, IMTOs operated within a permissible range to maintain stability and consistency in exchange rates for international money transfers. The -2.5% to +2.5% cap was designed to regulate these rates.
The latest circular reflects a policy shift, enabling IMTOs to quote exchange rates for naira payouts based on prevailing market rates. This move encourages a more transparent and market-driven approach to exchange rates, potentially leading to increased competition and better pricing for customers involved in international money transfers.
Insiders suggest that the change aims to motivate IMTOs to bring their forex supply into Nigeria rather than keeping it abroad. With the removal of exchange rate limits, diaspora Nigerians using IMTOs can now sell forex at prevailing market rates, potentially increasing forex inflow into Nigeria.
This decision by the CBN is expected to have wide-ranging implications for the foreign exchange market in Nigeria, impacting individuals and businesses engaged in international transactions. The move reflects the CBN’s commitment to fostering a more flexible and market-oriented foreign exchange environment, aiming to contribute to Nigeria’s financial sector’s overall health and efficiency.
Circular on allowable limit of exchange rate quote_240131_211923
