CBN allows IMTOs to sell FX on Nigeria’s official market

Key Points

• The Central Bank of Nigeria (CBN) allows eligible International Money Transfer Operators (IMTOs) to sell foreign exchange (FX) on Nigeria’s official market.
• The directive is effective immediately.
• It will enhance FX market efficiency and promote formal remittance channels.
• IMTOs can access Naira liquidity through the CBN or Authorised Dealer Banks (ADBs).
• The policy aims to alleviate FX liquidity constraints in the official market.

 

In a significant move to bolster foreign exchange liquidity and streamline remittance flows, the Central Bank of Nigeria (CBN) has issued a new directive permitting eligible International Money Transfer Operators (IMTOs) to sell foreign exchange (FX) directly on Nigeria’s official window.

This policy, effective immediately, aims to enhance the efficiency of the foreign exchange market and encourage the use of formal channels for remittances.

New Directive for IMTOs

The CBN’s circular, obtained by Arbiterz, states: “As part of CBN’s commitment to the smooth functioning of the foreign exchange markets and enabling greater remittance flows through formal channels, the Bank has implemented measures that will enable eligible International Money Transfer Operators (IMTOs) access Naira (NGN) liquidity through the CBN.

“These measures are aimed at widening access to local currency liquidity for the timely settlement of diaspora remittances.”

Henceforth, IMTO operators can access the CBN window directly or through their Authorised Dealer Banks (ADBs) to conduct FX transactions. This initiative is expected to ease FX liquidity constraints in the official market, where turnover has recently fluctuated between $83 million and $390 million.

Trading Guidelines

The circular, signed by Dr W. J. Kanya, Acting Director of the Trade & Exchange Department, outlines key guidelines for IMTOs and ADBs:

• Same-Day Settlement: Transactions confirmed before 12 noon on a trading day will have the option for same-day settlement, expediting liquidity for remittance beneficiaries.
• Pricing: Transaction prices will be based on prevailing NAFEM rates, ensuring transparency and market alignment.
• Regulatory Compliance: Participants must submit daily regulatory returns to the CBN, detailing sources of funds.
• Partnership Confirmation: IMTOs are required to confirm their partner banks and provide standard settlement instructions for smooth implementation.

Background and Context

In January 2024, the CBN removed the cap on exchange rates quoted by IMTOs, previously set within a range of -2.5 per cent to +2.5 per cent around the previous day’s closing rate of the Nigerian Foreign Exchange Market.

The apex bank also revised IMTO operational guidelines, increasing the application fee for licences from N500,000 in 2014 to N10 million and setting a minimum operating capital requirement of $1 million for both foreign and local IMTOs.

Additionally, IMTOs were previously barred from purchasing foreign exchange from the domestic market.

However, this new circular lifts the ban, allowing IMTOs to trade on the official market. This shift aligns with the CBN’s efforts to double remittance inflows through a Collaborative Task Force reporting directly to Governor Yemi Cardoso.

Implications for the FX Market

This directive is a pivotal step towards improving remittance flows into Nigeria and widening access to local currency liquidity, simplifying the conversion of remittances into naira.

By facilitating direct access to naira liquidity through the CBN or ADBs, the supply of foreign exchange in the official market is expected to increase, alleviating pressure on the parallel market and aiding in stabilising exchange rates.

Last month, the CBN granted 14 new Approval-in-Principle (AIP) to IMTOs, reinforcing its commitment to strengthening the remittance sector, according to Nairametrics.

As diaspora remittances are mandated to terminate in naira, the CBN ensures that inflows correspond with foreign currency receipts, promoting an efficient exchange system.

The move to permit IMTOs to sell FX on Nigeria’s official window marks a substantial stride towards enhancing the country’s financial stability and remittance infrastructure.

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