On January 28, the apex bank launched the Nigerian Foreign Exchange Code to promote transparency, accountability, and ethical conduct in the country’s forex market.
This and other measures the CBN has implemented to stabilise the forex market have started to tighten the noose around currency speculators in the country.
A forex analyst, Michael Nwadike, stated that dollar savers are losing out in the current naira rally and are likely to incur further losses as holders of the greenback sell it in the open market.
According to Nwadike, the search for better returns on investment is universal, but investors should consider the risks associated with such investments.
He asserted that investors seeking to diversify their portfolios and safeguard their wealth against the depreciation of the naira by investing in dollar-denominated assets should reconsider their strategies in light of the current naira rally.
He advised authorities to adopt more pro-market strategies to encourage foreigners to take on more naira risks.
“There should also be policies that attract longer-term capital rather than fleeting hot money. Implementing appropriate reforms, improving the ease of doing business, providing adequate infrastructure, and adopting a more liberal currency regime are measures that could be considered,” he said.
According to Nwadike, the era of forex distortions in the domestic foreign exchange market ended after the CBN-backed Electronic Foreign Exchange Matching System began operations.
The implementation of the forex policy had diverse implications for all segments of the financial markets dealing with forex, including a rebound in the value of the naira across markets.
“A stabilising naira is beneficial for everyone, stabilizing at both the official markets, but it’s unfortunate for those facing capital losses. This is not the time to hoard dollars as the naira is quickly finding its footing,” a forex trader based in Mushin, Lagos, Olakunle Amos, said.
A retired CBN Director, Prof. Jonathan Aremu, described the currency’s steady appreciation against the dollar as a positive development.
Aremu, who is a professor of international economic relations at Covenant University, and a regional expert on trade and investment for ECOWAS, called for increased production to sustain the naira’s gains.
He urged the CBN to focus on boosting productive activities in the economy to maintain stability.
According to Aremu, the apex bank should look beyond interest rates and consider other factors influencing production and liquidity.
“The quantity theory of money states that money supply and population value must equal price and transaction volume in the economy. If the policy only targets money supply without increasing transactions, the expected appreciation of the naira will not materialize. The economy needs a higher volume of goods and services. Many goods are available, but their prices depend on supply and demand,” he mentioned.
The President of the Association of Bureaux De Change Operators of Nigeria, Aminu Gwadabe, believed that the apex bank remained committed to resolving the forex issues confronting the nation and had been working to manage both the demand and supply side challenges.
While acknowledging the significant demand pressure for foreign exchange to meet the needs of manufacturers, tuition, medical fees, and other invisibles, he added that the monetary authority was strategizing to help Nigeria earn more stable and sustainable inflows of foreign exchange despite dwindling inflows from the oil sector.
He specifically noted that recent initiatives undertaken by the Bank, such as the FX code policy and EFEMS, have helped increase foreign exchange inflow to the country.
The CBN Governor, Olayemi Cardoso, described EFEMS as one of the many gains of the exchange rate unification policy, which is expected to bring several other benefits to market operations.
He said the policy would not only address forex market distortions, eliminate speculative activities, and instil transparency, but also make it difficult for market abuse to persist.
Cardoso highlighted that an enabling policy environment had led to a doubling of monthly remittances from an average of $300m in 2023 to nearly $600m in August 2024.
We are committed to further integrating the Nigerian diaspora into our financial system, exemplified by the introduction of the non-resident Bank Verification Number registration. We expect our financial institutions to develop products that not only enable the diaspora to support their families but also provide opportunities for savings and investment in Nigeria,” Cardoso stated.
He noted that the current exchange rate for the naira did not reflect the true value of the local currency.
END.
