International Money Transfer Operators now permitted to set exchange rates for Naira payouts

On January 31, 2024, the Central Bank of Nigeria (CBN) issued a circular in accordance with its commitment to liberalize the Nigerian Foreign Exchange Market. The circular stated that International Money Transfer Operators (IMTOs) are now permitted to determine the exchange rates for Naira payouts to beneficiaries based on the prevailing market rates at the Foreign Exchange Market, following a willing seller, willing buyer approach.

Consequently, the previous cap of -2.5% to +2.5% around the previous day’s closing rate of the Nigerian Foreign Exchange Market has been eliminated. This policy is part of the CBN’s ongoing reforms aimed at ensuring that exchange rates are determined by market forces. While this reform may result in increased exchange rate volatility, it could also have implications for import costs, inflation, and overall economic stability.

On a positive note, the policy is expected to narrow the gap between official and parallel exchange rates and potentially boost foreign currency inflows through official channels. This, in turn, is anticipated to alleviate the scarcity of foreign currency within the economy. To effectively address currency fluctuations associated with flexible exchange rate management, it is crucial for authorities to closely monitor exchange rate changes and consider implementing measures to reduce volatility.

Additionally, efforts should be made to enhance export earnings from both the oil and non-oil sectors. Failure to do so could render the currency susceptible to speculative attacks, leading to a continuous depreciation of the domestic currency against foreign currencies. Furthermore, continuous endeavors to enhance transparency and governance in the foreign exchange market are essential.