The Central Bank of Nigeria (CBN) is working with the International Monetary Fund (IMF) to establish a comprehensive framework to address volatility in the foreign exchange market.
Muhammad Sani Abdullahi, the CBN’s Deputy Governor of Economic Policy, said this during a crucial strategic dialogue session with international investors.
In a partnership with the CBN, this online engagement was orchestrated by the Nigerian Exchange Group (NGX).
It was further supported by various global financial titans, including Standard Bank, Citi Bank, J.P. Morgan, and Standard Chartered. It was earlier scheduled to be held on Wednesday but was moved to Thursday.
Abdullahi said:
- “We plan as much as possible and we are working with the IMF on this to provide a framework where we can allow for a bank where there is excess volatility to be able to see if that volatility is due to lack of supply, then the CBN will step in to improve supply not as a price discovery issue but to provide stability in whatsoever segment is being volatile.”
Ensuring stability across all FX market segments
Abdullahi expressed the central bank’s unwavering commitment to ensuring the utmost stability across all foreign exchange (FX) market segments.
He highlighted the CBN’s proactive approach towards identifying and mitigating instances of undue volatility, whether emanating from the banking sector or the Bureau De Change (BDC) segment. As Abdullahi pointed out, the primary goal is not to manipulate market prices but to establish and maintain stability across the board.
He said:
- “We want to ensure as much as possible stability in all segments of the FX market. So, whenever we see volatility, excess volatility, whether from the bank side or the BDC segment, then the CBN will step in not to drive price but to provide that stability.”
Revamping BDC Operations
Shifting focus to the proposed guidelines for BDC operations, Abdullahi provided insights into the exposure draft aimed at overhauling this crucial sector.
The draft’s primary aim is to align BDC activities more closely with global Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) standards, bolster reporting mechanisms, integrate advanced technology, and guarantee that this sector delivers superior, streamlined, and well-regulated services to its diverse clientele.
He said:
- “The exposure draft that was provided on the bureau de change activities is done firstly to bring that segment more in line with AML/CFT regulations, various reporting requirements, to introduce technology, and to ensure that segment can provide a service to that customer base that still uses that segment in a way that is more improved, streamlined and supervised.”
He added that a part of the plan is to remove Nigeria from the Financial Action Task Force’s (FATF) grey list.
More Insights
- The CBN recently unveiled an initiative to narrow the growing disparity in the exchange rate. Dr. Hassan Mahmud, the Director of the Trade & Exchange Department at the CBN, issued a new circular announcing the plan to allocate $20,000 to each qualified BDC operator within the nation.
- This fresh allocation is set to be sold at N1,301/$, mirroring the lower boundary rate of the completed spot transactions within the Nigerian Autonomous Foreign Exchange Market (NAFEM) on the last trading day, February 27, 2024.
- The circular delineates precise regulations for the BDC operators, permitting them to sell foreign exchange to customers at a rate not exceeding a 1% markup over their acquisition cost from the CBN. This guideline is designed to curb excessive pricing and safeguard consumers from potential financial exploitation.
- The CBN’s introduction of this policy is among numerous substantial steps taken to address the depreciation of the naira.
- These measures include investigating and resolving FX backlogs, restricting forex allocation for overseas education and medical trips, augmenting the minimum share capital for BDCs, and targeting FX market speculators.
- Through these reforms, the CBN is steadfast in its commitment to stabilizing the naira and enhancing the overall health of Nigeria’s foreign exchange market.
