CBN Lifts Its Ban on Interbank Foreign Exchange Transactions Limit

CBN lifts its ban on interbank foreign exchange transactions limit. The Central Bank of Nigeria has reportedly announced the removal of the cap spread that it had placed in interbank foreign change (FX) transactions prior to this, effective immediately.

CBN Lifts Ban on Interbank Foreign Exchange Transactions Limit

CBN Lifts Ban on Interbank Foreign Exchange Transactions Limit

The Central Bank of Nigeria (CBN) has made a pivotal shift towards a market-driven approach to determining the interbank foreign exchange rate, allowing market forces such as demand and supply to dictate pricing. This development marks a significant move from previous practices, emphasizing transactions to be conducted on a “Willing Buyer and Willing Seller” basis among authorized dealers in the Nigerian Foreign Exchange Market. These dealers are expected to maintain the highest standards of conduct, including the enforcement of price transparency and the integrity of transactions.

This announcement follows a previous policy adjustment by the CBN on January 31, which abolished the exchange rate cap for International Money Transfer Operators (IMTOs), aiming to enhance transparency and foster a market-oriented exchange rate mechanism.

The CBN’s “Revised Guidelines for the Operation of the Nigerian Inter-bank Foreign Exchange Market,” initially published in June 2016, outlines the roles and responsibilities of market participants, including authorized dealers and buyers, oil companies, exporters, and end-users. A notable stipulation from the 2016 guidelines was the prohibition on the sale of inter-bank funds to Bureau-de-Change (BDC) operators.

How the Recent Directive from CBN Works

However, under the recent CBN directive, this restriction has been lifted, allowing authorized dealers in the inter-bank FX market to engage in transactions with BDC operators and other external buyers, thereby widening the scope for foreign exchange dealings.

Additionally, the CBN mandates that all foreign exchange transactions completed by authorized dealers be recorded on designated treasury systems and reported to the relevant market authorities to ensure compliance and oversight.

The CBN and Forex Market Operations

In a circular dated September 13, 2023, the CBN specified that IMTOs and banks must adhere to an exchange rate fluctuation cap of -2.5% to +2.5% around the closing rate of the previous day in the Nigerian Foreign Exchange Market. This requirement aims to stabilize the exchange rate and mitigate excessive volatility, ensuring a balanced and orderly forex market operation.


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