Nigeria Forex Crisis: Central Bank Removes Cap on Exchange Rate for International Money Transfer Operators

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The Central Bank of Nigeria announced on Jan. 31 that it had removed caps on naira payout rates that international money transfer operators are allowed to quote. The central bank said the policy change is an effort aimed at further liberalizing the foreign exchange market. The naira’s Feb.1 gain versus major currencies has been attributed to the CBN’s removal of “allowable limits.”

The Nigerian Foreign Exchange Market and the Volatile Naira

On Jan. 31, the Central Bank of Nigeria (CBN) said it had removed the caps on naira exchange rates that international money transfer operators (IMTOs) are allowed to quote. Before this change, IMTOs were compelled to quote rates not exceeding the previous day’s exchange rate by more than 2.5%.

With this new policy adjustment, which supersedes a CBN circular issued on Sept. 13, 2023, IMTOs are now permitted to provide naira payout rates based on the prevailing exchange rate. The central bank’s decision comes amidst ongoing discussions about the naira’s stability and its value in the official foreign exchange market.

Removal of Allowable Limit of Exchange Rate Quoted by the International Money Transfer Operators…

— Central Bank of Nigeria (@cenbank) February 1, 2024

Some Nigerian commentators told News that the upper and lower caps were implemented as a preemptive measure to mitigate the risk of rapid depreciation of the naira. However, instead of bolstering the CBN’s efforts to liberalize the foreign exchange market, this restriction led to an inflow of more dollars onto the parallel market.

Consequently, the gap between the naira’s parallel and official market exchange rates has widened. As recently reported by News, the naira plummeted to a new low against the greenback in late January and has continued to lose ground since then.

Meanwhile, some local reports suggest that this policy shift is already achieving the desired results after the naira recorded a more than 8% against the dollar on Feb. 1. Analysts speculate that this surge may directly correlate with the removal of the allowable limit by the central bank. The naira’s marginal recovery versus the dollar also came amidst reports that licensed foreign exchange dealers were planning to cease operations.

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