3 weeks ago
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There is no doubt that the foreign exchange market is the heartbeat of Nigeria’s economic and business growth, and there is a need to equip it with the necessary tools to perform optimally.
One of such tool is the recent inauguration of the Nigeria Foreign Exchange Code (FX Code) in Abuja by the Central Bank of Nigeria (CBN), a move seen as a bold step to enhance transparency and boost market confidence.
The FX Code has so far ignited a naira rally at both official and parallel markets, but its overall success will depend on banks and other financial institutions’ compliance with the implementation rules set by the apex bank.
Globally, foreign exchange markets are known to thrive on ethics, transparency and regulatory compliance under the supervision of central banks.
These are some of the key principles that not only define their operations ,but serve as a barometer for assessing their effectiveness.
The Nigerian foreign exchange market is not an exception.
Last week, the Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, launched the Nigeria Foreign Exchange Code (FX Code), emphasising integrity, fairness, transparency, and efficiency as critical pillars for driving Nigeria’s economic growth and stability.
He emphasised that the FX Code was built on six core principles: ethics, governance, execution, informationsharing, riskmanagementandcompliance, as well as confirmation and settlement processes.
These principles, he explained, aligned with international standards while addressing the unique challenges within Nigeria’s foreign exchange market.
According to Cardoso, “The FX Code represents a decisive step forward, setting clear and enforceable standards for ethical conduct, transparency, and good governance in our foreign exchange market. The era of opaque practices is over. The FX Code marks a new era of compliance and accountability. Under the CBN Act 2007 and BOFIA Act 2020, violations will be met with penalties and administrative actions.”
Impact on market operations
The naira has sustained a rally at both official and parallel markets since the launch of the FX Code last week, with the local currency reaching its strongest level in nearly eight months on Wednesday, closing at N1,580 to the dollar at the parallel market.
Analysts from Cordros Securities said the naira last week strengthened significantly, appreciating by 3.8 per cent week-on-week to N1,474.78/$ at the NigerianAutonomousForeignExchangeMarket(NAFEM). This sharp increase is attributed to the policies implemented by the CBN, especially the FX code, which have influenced market dynamics and contributed to the currency’s strengthening.
Thislatestmovementmarksareturntothatrange, reflecting the impact of recent monetary and foreign exchange measures introduced by the CBN to stabilise the currency and improve market confidence.
Ike Chioke, Managing Director, Afrinvest West Africa Limited, said the naira gained 4.3 per cent month-on-month against the greenback to close at N1,474.78/$1.00. Similarly, the parallel market rate appreciated 1.4 per cent to N1,610.00/$1.00.
He projected a sustained positive naira performance this month, supported by CBN’s efforts at entrenching transparency in market operations.
“In the new month, we expect the naira to remain on a positive trajectory bolstered by CBN’s effort at currency stability,” he said in an emailed note to investors.
The naira rally was also driven by inflows from Foreign Portfolio Investors (FPIs), substantial contributionsfromInternationalOilCompanies(IOCs), and the CBN’s $18.40 million intervention to authorised dealers.
Other analysts also mentioned the renewed interest of Foreign Portfolio Investors (FPIs) in the FX market—driven by improved market confidence, a more efficient FX framework, and strengthening macroeconomic conditions—alongside the CBN’s sustained market interventions, is expected to continually support naira stability.
Aminu Gwadabe, the President of the Association of Bureaux De Change Operators of Nigeria (ABCON), on his part, attributed the ongoing rebound of the naira against the dollar and other world currencies to the CBN’s policies.
Gwadabe, hinged the naira rally to the newly implemented Foreign Exchange (FX) Code, rising investors’ confidence, and policies supporting more dollar inflows through diaspora remittances.
He backed the apex bank’s position that the FX Code is comprehensively addressing various aspects of market conduct and practice, it is not intended to be exhaustive.
He said the policy authorises the CBN to establish and enforce directives regarding the standards for financial institutions under which FX deals are to be conducted.
Gwadabe said the code will further entrench transparency and accountability in the FX market and continually sustain the naira rally.
He also backed CBN’s position that all institutions engaged in the foreign exchange market must also provide the CBN with a detailed implementation plan outlining how they intend to achieve full compliance with the FX Code.
These plans are expected to be formally approved and signed by the institution’s board of directors, and they must be accompanied by relevant extracts from the board meeting where the plan was reviewed and endorsed.
CEO of Countryside Markets Limited, Stevens Michael, said: “For me, the whole idea is just to ensure that there is a lot more sanity in the foreign exchange market because those characters have created a whole lot of problems over the years in the foreign exchange market,”
“I think that is what the CBN is trying to do and the more we’re able to sanitise the markets, I think the more stability it will achieve in the foreign exchange market,” he said.
The CBN has stated that while every effort has been made to ensure that the FX Code comprehensively addresses various aspects of market conduct and practice, it is not intended to be exhaustive.
Governor Cardoso also noted that the journey towards market reform is already yielding results.
He stated, “The year 2024 was marked by structural reforms that sought to return the naira to a freely determined market price and ease volatility as several distortions were removed from the market.”
Beyond the foreign exchange market, the FX Code forms part of the CBN’s renewed focus on compliance across the financial sector. Its six guiding principles, alongside 52 sub-principles, were designed to become the benchmark for conduct across all participating institutions.
Banks’ role
Without a doubt, commercial banks are major stakeholders in the FX Code implementation and analysts have therefore called on the CBN to institute strong measures of compliance checks to ensure that banks, which in the past constituted one of the weakest links to FX policy implementation, comply with the new policy measures.
Although the apex bank has secured its support and commitment to policy implementation, routine regulatory checks will help sustain market gains from the project.
The formal signing by participating banks symbolises a unified effort to promote transparency and trust, but the apex bank regulator should take steps that guarantee lenders match their words with action.
Understanding FX Code Rules
Issued as a guideline for the foreign exchange market, the FX Code is backed by the authority of the CBN Act of 2007 and the Banks and Other Financial Institutions Act (BOFIA) of 2020.
These legislative instruments empower the CBN to establish and enforce directives regarding the standards financial institutions must follow in conducting foreign exchange business in Nigeria.
The FX Code, therefore, serves as an official directive that all market participants are expected to observe in their operations.
As part of compliance requirements, market participants must conduct a self-assessment of their adherence to the FX Code and submit a report detailing their level of compliance with the CBN by January 31, 2025.
Following this, all institutions engaged in the foreign exchange market must also provide the CBN with a detailed implementation plan outlining how they intend to achieve full compliance with the FX Code.
This plan must be formally approved and signed by the institution’s board of directors, and it must be accompanied by relevant extracts from the board meeting where the plan was reviewed and endorsed.
Other policy reforms
The CBN has also taken strategic steps to tackle inflation.
The apex bank recently hosted the Monetary Policy Forum 2025, featuring fiscal authorities, legislative, private sector, development partners, subject-matter experts, and scholars with the theme: “Managing the Disinflation Process”.
Cardoso explained that the apex bank’s focus is to sustain price stability, the planned transition to an inflation-targeting framework, and strategies to restore purchasing power and ease economic hardship.
The CBN is continuing its disciplined approach to monetary policy, aimed at curbing inflation and stabilizing the economy.
“These actions have yielded measurable progress: relative stability in the FX market, narrowing exchange rate disparities, and a rise in external reserves to over $40 billion as of December 2024.
The CBN also focused on strengthening the banking sector, introducing new minimum capital requirements for banks (effective March 2026) to ensure resilience and position Nigeria’s banking industry for a $1 trillion economy,” he said.
Already, remittances through International Money Transfer Operators (IMTOs) rose 79.4 per cent to US$4.18 billion in the first three quarters of 2024, demonstrating the positive impact of FX reforms.
Additionally, the CBN lifted the 2015 restriction barring 41 items from accessing FX at the official market to enhance trade and investment.
These reforms and developments reflect the bank’s commitment to creating an enabling environment for inclusive economic development. However, achieving macroeconomicstabilityrequiressustainedvigilance and a proactive monetary policy stance.
“As we shift from unorthodox to orthodox monetary policy, the CBN remains committed to restoring confidence, strengthening policy credibility, and staying focused on its core mandate of price stability,” Cardoso reaffirmed.
To tackle the pressing challenge of inflation, the CBN acted decisively by raising the Monetary Policy Rate by 875 basis points to 27.5 per cent in 2024—an essential move to contain inflation and restore stability.
“Our tight monetary policy stance has altered the previous dire trajectory, and we expect a downward trend in 2025. Inflation remains unacceptably high, but the signs are encouraging, particularly given that the full effects of monetary policy typically take six to nine months to impact the consumer sector. Our commitment is unwavering: we will prioritize price stability until its benefits are felt by every Nigerian,” Cardoso said during the last bankers’ dinner held in Lagos.
The CBN under Cardoso has equally undertaken critical reforms to unify Nigeria’s exchange rate, eliminating distortions and restoring transparency. This unification has enabled us to clear the outstanding foreign exchange obligations, giving businesses—ranging from manufacturers to airlines—the confidence to plan and invest in the future.
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