The foreign exchange market remains the heartbeat of Nigeria’s economic and business growth, influencing trade, investment and overall financial stability. In a bold move to enhance transparency and restore investor confidence, the Central Bank of Nigeria (CBN) recently inaugurated the Nigeria Foreign Exchange Code (FX Code) in Abuja.......CONTINUE READING THE ARTICLE FROM THE SOURCE>>>>>
Since its introduction, the FX Code has already fueled a resurgence in the value of the naira across both the official and parallel markets, signaling renewed optimism among market participants. However, the long-term success of this initiative hinges on strict compliance by banks and other financial institutions with the implementation guidelines set by the apex bank. As the CBN continues to drive reforms in the forex market, all eyes are on how effectively financial players align with the new framework to ensure sustained stability and economic growth.
Across the globe, foreign exchange markets thrive on ethics, transparency, and regulatory compliance, operating under the vigilant oversight of central banks. These fundamental principles not only shape their operations but also serve as a benchmark for measuring their effectiveness and stability.
Nigeria’s foreign exchange market is no exception. In a decisive move to reinforce integrity and efficiency, the Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, last week unveiled the Nigeria Foreign Exchange Code (FX Code). At the heart of this initiative lies a commitment to fairness, transparency, and accountability—critical pillars designed to bolster investor confidence and drive sustainable economic growth.
He emphasised that the FX Code was built on six core principles: ethics, governance, execution, information sharing, risk management and compliance, 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
Naira Strengthens to Eight-Month High as FX Code Boosts Market Confidence:
The naira has continued its upward momentum across both the official and parallel markets following the launch of the FX Code last week. On Wednesday, the local currency surged to its strongest level in nearly eight months, closing at N1,580 per dollar in the parallel market. This sustained rally reflects renewed investor confidence and market optimism, signaling a positive shift in Nigeria’s foreign exchange landscape.
Analysts at Cordros Securities have observed a significant appreciation of the naira, which strengthened by 3.8% week-on-week to N1,474.78/$ at the Nigerian Autonomous Foreign Exchange Market (NAFEM). This sharp uptrend is largely attributed to the Central Bank of Nigeria’s (CBN) recent policy interventions, particularly the introduction of the FX Code. The initiative has reshaped market dynamics, boosting transparency and investor confidence while reinforcing the naira’s resilience in the foreign exchange market.
The latest movement marks a return to that range, reflecting the impact of recent monetary and foreign exchange measures introduced by the CBN to stabilise the currency and improve market confidence.
Managing Director, Afrinvest West Africa Limited, Ike Chioke, said naira gained 4.3 per cent month-on-month against the greenback to close at N1,474.78/$1.00. Similarly, 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 recent surge in the naira’s value has been bolstered by increased inflows from Foreign Portfolio Investors (FPIs), substantial contributions from International Oil Companies (IOCs), and the Central Bank of Nigeria’s (CBN) $18.40 million intervention to authorized dealers.
Analysts have also pointed to the renewed interest of FPIs in the foreign exchange market, driven by improved market confidence, a more transparent FX framework, and strengthening macroeconomic conditions. Combined with the CBN’s sustained interventions, these factors are expected to provide continued support for the naira’s stability, reinforcing a more resilient and efficient foreign exchange market.
In his intervention, the President, Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, attributed the ongoing rebound of the naira against 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 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.
This plans are expected to 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.
The Chief Executive Officer, 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 really 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 in FX code implementation
Commercial banks are major stakeholders in the FX Code implementation. 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 their support and commitment to policy implementation, but routine regulatory checks will help sustain market gains from the project.
The formal signing by participating banks, symbolising a unified effort to promote transparency and trust but the apex bank regulator should take steps that guarantees that the lenders match their words with action.
Understanding the 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 to 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.
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 macroeconomic stability requires sustained vigilance 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 6-9 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.
Under the leadership of Governor Olayemi Cardoso, the Central Bank of Nigeria (CBN) has spearheaded crucial reforms aimed at unifying Nigeria’s exchange rate, eliminating distortions, and restoring much-needed transparency. This unification has not only enabled the clearing of outstanding foreign exchange obligations but also instilled confidence across sectors—from manufacturers to airlines—empowering businesses to plan and invest with greater certainty.
Analysts assert that these measures, implemented under Cardoso’s stewardship, have not only revitalised the forex market and ensured long-lasting stability but have also laid a solid foundation for sustainable economic growth in the years to come.
