The series of reforms that the Central Bank of Nigeria has implemented under the leadership of the Governor, Mr Olayemi Cardoso have stabilised the foreign exchange market and led to the appreciation of the naira, THE WHISTLER investigations have revealed.
The Naira has made a strong comeback between January 1 2025 to February 21, 2025, rising from N1,640 per dollar to around N1,510 per dollar on Friday, February 21, 2025.
Also, the spread between the official rate and black market rate has reduced to about one per cent per cent.
Cardoso had said in the 299th Monetary Policy Meeting that, “The window or the differential in rates between the BDCs and the official rate has come down to maybe less than one per cent.
“The FX code is one in a number of measures, which importantly, have brought all the different key stakeholders together to agree on the different practices for which foreign exchange market will be transacted.
“And at that particular forum where this signing was done, I just want to remind people that we had a lot of commitment from the banks because they are major players in that industry.
“The chairman of the banks, the CEOs, and the chief compliance officers were invited to that forum. And we also at the bank were present and we all signed up to this international code, which covers ethics and we are doing business and the consequences for not doing things the proper way.”
The apex bank boss explained the banking community has been supportive and fulfilled their own part of the bargain.
Cardoso said, “I think that clearly, in my view, has sent the right signal to the market and has brought about greater transparency and greater accountability, which is what it should be or what it should have been in the past.
“So, we have merely taken our market back to what it used to be. The rates have moderated, which is not surprising. And the differential between the official and the black market has also come down to very insignificant amount.”
No Basis For Rewane’s Claims- Expert
The Co-Founder/Chief Executive Officer (CEO) of Dairy Hills, Kelvin Emmanuel in a response to claims made by the Chief Executive of Financial Derivatives Company Bismarck Rewane that the apex bank defended the naira with $8bn, states that the FDC boss got it wrong on his assumptions.
Kelvin said, “The claim that the CBN has intervened with $8bn to strengthen the current rally in the markets is outlandish as there’s no evidence to back such claim.
“The CBN has not seen consistent net asset ratio position in its external reserves with its 6 external asset managers above $10bn in years, a lot of the FX that was suppose to come to markets from export sale of crude is used to settle forward sale agreement through swaps.”
Kelvin said the rally of the naira might have been driven by “increase in the flow of Foreign Portfolio Investments (FPIs) with 1-Year forwards taken to hedge risk
“Deloitte has given a go on the $2.4bn outstanding of the $7bn in forwards for companies that had their funds hanging for years. So, the CBN is drawing down on those positions.”
He also linked the rise in naira to the “introduction of the Bloomberg B-matching system at the Nigerian Autonomous Foreign Exchange Market (NAFEM) and migration from the managed float.
This, he said, has forced primary dealers to gradually comply with the policy directive from Trade and Exchange to hold 0% long onshore and 20 per cent short onshore — that has strengthened liquidity and transparency in the markets.
According to him, there is no evidence to assert that the CBN used $8bn to defend the naira.
Kelvin said there are reports by international rating firms that the naira is undervalued by 30 per cent.
He said, “There’s no evidence to the claim that the CBN has traditionally intervened with $8bn to achieve the current rally.
“The naira is undervalued by 30 per cent but it requires fundamental reforms especially in the energy sector to ensure we can see a true adjustment of the curve to its true north.
“Other than the domestic dollar bonds and Eurobonds issue (priced at SOfR plus CRP), I’m not aware that the government has issued other debt notes. FPIs are bringing in FX with forwards to hedge through treasuries at no fault to rates because NTB stop limits is a function of the inflation to interest yield curve.
“So, there’s no basis on which anyone will say that the government has used $8bn to maintain current rates in the FX markets. The work is slowing down the inflation rate, and by that I’m not referring to the poor attempts at reducing it through rebasing.”
How CBN’s FX Market Reforms Drive Naira Stability
Last year, the CBN took series of measures to stabilise the forex market, including tightening regulations within the sector.
In order to enforce transparency in the forex market, the CBN reintroduced the Nigeria Foreign Exchange Code (FX Code) which has reduced speculative trading and opaque market practices.
Last year, the CBN clamped down on forex speculation, removed the ±2.5 per cent cap on interbank FX transactions, and tasked the Economic and Financial Crimes Commission (EFCC) with curbing illegal forex dealings.
In March 2024, the CBN revoked the licenses of 4,173 Bureau De Change (BDC) licenses and introduced new rules including the recapitalization of BDCs with N2bn for tier-one and N500m for tier-two BDCs.
The CBN expects that by the second quarter of 2025, operators must comply with the new capitalization in order not to remain outlaw.
The government also took steps to enhance forex liquidity by reintroducing Retail Dutch Auctions (RDAs) and issuing a $500m domestic dollar bond.
Also, the CBN gave a nine-month window for Nigerians to deposit undisclosed foreign currency in banks, aiming to improve forex inflows.
The apex bank further approved banks to trade idle FX deposits, im addition to new trading guidelines including a $100,000 minimum trade mandate. This has further contributed to efforts to stabilize the market.
