June 25, 2024/United Capital Research

The Central Bank of Nigeria (CBN) has authorized eligible International Money Transfer Operators (IMTOs) to sell foreign exchange (FX) on the official market to enhance remittance flows and foreign exchange market efficiency. This decision aims to address the FX liquidity issues in the official market, where FX turnover on the NAFEM window has ranged between $83 million and $390 million over the past month. This follows a similar policy from the previous month, where the CBN allowed International Oil Companies (IOCs) to sell 50% of their repatriated export proceeds to authorized forex dealers.

The New Measures:

To serve as guidance, the CBN outlined the below for compliance:

1. The option of same day settlement will be available for transactions executed and confirmed before 12 noon on a trading date.
2. The pricing for transactions executed with the CBN will be based on prevailing NAFEM rates, as referenced by an observable and acceptable market benchmark.
3. The operation of this market segment follows the existing arrangement in place for authorised dealers with Foreign Portfolio Investment participating in the primary market securities auctions.
4. Regulatory returns to be submitted to the CBN by all participants on a daily basis are mandatory and this is expected to contain all the relevant information on the sources of funds.
5. All interested IMTO’s are required to confirm their partner banks and advise standard settlement instructions to facilitate the smooth implementation of this initiative.
6. Participants in this segment are the IMTOs, Authorised Dealer Banks and CBN.

Key Highlights

• Only “eligible” International Money Transfer Operators (IMTOs) will be able to access Naira (NGN) liquidity through the CBN window, directly or through their Authorised Dealer Banks (ADBs), to execute transactions for the sale of foreign exchange in the NAFEM.
• These new measures are strictly aimed at widening access to local currency liquidity for the timely settlement of diaspora remittances.
• All licenced IMTOs are expected to terminate all diaspora remittances in Naira and match with the corresponding foreign currency inflows.
• The CBN’s new measure are to be implemented with immediate effect as of 24 June 2024.

Allowing IMTOs to sell foreign exchange on Nigeria’s official window is poised to boost remittance flows and improve access to local currency liquidity for recipients, facilitating easier conversion of remittances into naira. By ensuring all diaspora remittances are converted into naira, the CBN aligns inflows with corresponding foreign currency receipts, promoting an efficient exchange system. This initiative is expected to enhance foreign exchange supply in the official market by enabling IMTOs to access naira liquidity directly through the CBN or ADBs, which should reduce pressure on the parallel market and contribute to stabilizing exchange rates.