Donatus Eleko

The Central Bank of Nigeria (CBN) took a strategic step to enhance transparency and boost market confidence with the inauguration of the Nigeria Foreign Exchange Code (FX Code) in Abuja.

Six months after, stakeholders’ assessment shows that the FX Code has so far ignited naira rally at both official and parallel markets, with the local currency exchanging at N1,530/$ from N1,585/$ it exchanged in February when the policy officially took off. The code has also supported foreign reserves accretion and entrenched transparency, governance, and compliance in the foreign exchange market.

Globally, the quest for a transparent and efficient foreign exchange market has continued to be top priority of central bank managements.

For Nigeria, the inauguration of the Nigerian Foreign Exchange Code (FX Code) was a strategic step to move beyond rhetoric, and entrench accountability, compliance, and transparency in the country’s foreign exchange market.

Six months after the policy takeoff in February, the impact of FX Code policy has reverberated across the markets, engendering confidence of local and foreign investors in market.

From the stability in the foreign exchange market to the transparency in forex operations, the market has come to accept the code principles, hailed across board as regulatory success.

The unveiling of the Nigerian FX Code represents a decisive step toward fostering transparency, trust, and integrity in Nigeria’s foreign exchange market.

As part of his reform agenda, the Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, launched the FX Code to promote accountability in forex operations.

Speaking at the event, which held at the CBN Head Office Auditorium, Abuja, Cardoso said: “The FX Code marks a new era of compliance and accountability. It is not just a set of recommendations; this is an enforceable framework.”

He said the initiative reflects the CBN’s unwavering commitment to restoring public confidence and setting a global benchmark for ethical conduct in financial markets.

He emphasised that the Nigerian FX Code, which comes on the heels of the Electronic Foreign Exchange Matching System (EFEMS) launched in December 2024, sets clear and enforceable standards for ethical conduct and governance in the foreign exchange market, addressing past challenges that undermined market integrity.

“We must not forget where we are coming from. The era of multiple exchange rates, which created privileges for a select few at the expense of most Nigerians, inflicted significant damage on market integrity.

“Practices such as unprecedented ways-and-means financing contributed to inflation, currency depreciation, and eroded public confidence. These practices must never return,” Cardoso warned.

He noted that unethical behavior and systemic abuses were key contributors to past issues and vowed decisive action against any breaches of the FX Code.

“We will not tolerate any attempts to revert to those practices. Any individual or institution that violates the FX Code will face swift and decisive sanctions.”

Deputy Governor, Economic Policy Directorate, Abdullahi, Muhammad Sani, had highlighted the six guiding principles and the 52 sub-principles of the code.

Director Financial Markets Department (FMD), Dr. Omolara Duke, disclosed that the Nigerian FX Code was adopted from the Global FX Code, launched in May 2017. She noted that Nigeria now joins 54 other central banks in signing onto this global standard.

“The true power of the Code lies in its ability to create a legacy. Our goal is to ensure that Nigeria’s foreign exchange market is seen as a beacon of trust and integrity on the global stage,” Dr. Duke said.

Speaking further she commended all Deposit Money Banks (DMBs) for their collaboration in shaping the Code and urged continued commitment to upholding its principles.

Stakeholders in the banking sector had emphasised the significance of the Nigerian FX Code in fostering a robust and ethical financial ecosystem in Nigeria. The banks had signed the Nigerian FX Code, underscoring a collective commitment to the Code’s principles.

FX Code’s Impact on Naira, Reserves 

From exchange rate stability to increased dollar inflows from the Diaspora, FX Code has continued to sustain its usefulness across key segments of the market.

Analysts insist that sustaining this positive impact will depend on banks and other financial institutions compliance with the implementation rules set by the apex bank.

The naira has sustained rally at both official and parallel markets since the launch of the FX Code, with the local currency, reaching its strongest level in over one year, closing at N1,530 to dollar from N1,585 it exchanged by the time the policy implementation official started.

Analysts at Cordros Securities expect the naira to remain relatively stable, supported by robust FX liquidity and sustained inflows from both domestic and foreign sources. This positive outlook is anchored on continued market confidence and attractive naira yields.

 The foreign reserves have also recorded significant gain, hitting $40.11 billion last month, making it the highest level recorded since November 2024. The $40.11 billion reserve level representing approximately 9.5 months of import cover, signals a significant boost to country’s foreign currency buffer.

Cardoso had emphasized that the FX Code was built on six core principles: ethics, governance, execution, information sharing, risk management and compliance, as well as confirmation and settlement processes.

These principles, he explained, aligned with international standards while addressing the unique challenges within Nigeria’s foreign exchange market.

According to Cardoso, “The FX Code represents a decisive step forward, setting clear and enforceable standards for ethical conduct, transparency, and good governance in our foreign exchange market. The era of opaque practices is over. The FX Code marks a new era of compliance and accountability. Under the CBN Act 2007 and BOFIA Act 2020, violations will be met with penalties and administrative actions.”

Views from Stakeholders

On his part, President, Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, attributed the ongoing rebound of the naira against the dollar and other world currencies to the CBN’s policies.

Gwadabe hinged the naira rally to the newly implemented Foreign Exchange (FX) Code, rising investors confidence, and policies supporting more dollar inflows through diaspora remittances.

He backed the apex bank’s position that the FX Code is comprehensively addressing various aspects of market conduct and practice, it is not intended to be exhaustive.

He said the policy authorises the CBN to establish and enforce directives regarding the standards for financial institutions under which FX deals are to be conducted.

Gwadabe said the code will further entrench transparency and accountability in the FX market, and continually sustain the naira rally.

He also backed CBN’s position that all institutions engaged in the foreign exchange market must also provide the CBN with a detailed implementation plan outlining how they intend to achieve full compliance with the FX Code.

These plans are expected to be formally approved and signed by the institution’s board of directors, and it must be accompanied by relevant extracts from the board meeting where the plan was reviewed and endorsed.

CEO, Countryside Markets Limited, Stevens Michael, said: “For me,  the whole idea is just to ensure that there is a lot more sanity in the foreign exchange market because those characters have really created a whole lot of problems over the years in the foreign exchange market”.

“I think that is what the CBN is trying to do, and the more we’re able to sanitise the markets, I think the more stability it will achieve in the foreign exchange market,” he said.

The CBN has stated that while every effort has been made to ensure that the FX Code comprehensively addresses various aspects of market conduct and practice, it is not intended to be exhaustive.

Cardoso also noted that the journey towards market reform is already yielding results.

He stated, “The year 2024 was marked by structural reforms that sought to return the naira to a freely determined market price and ease volatility as several distortions were removed from the market.”

Beyond the foreign exchange market, the FX Code forms part of the CBN’s renewed focus on compliance across the financial sector. Its six guiding principles, alongside 52 sub-principles, were designed to become the benchmark for conduct across all participating institutions.

In an emailed report to investors, Head of Research at Commercio Partners, Ifeanyi Ubah,  said the CBN retained the Monetary Policy Rate (MPR) at 27.5 per cent following the conclusion of its 301st Monetary Policy Committee (MPC) meeting.

He said the need to sustain the recent disinflationary trend and keep price pressures under control could be responsible for the rate retention.

Analysts were divided ahead of the meeting, with some predicting a marginal hike to bolster the naira and others expecting a hold due to concerns about sluggish economic growth.

Ubah, however, insisted that the decision suggests that the CBN is prioritizing macroeconomic stability while supporting the gradual disinflation trend.

Banks Role in Code Implementation

Commercial banks are major stakeholders in the FX Code implementation. The CBN has also instituted strong measures of compliance checks to ensure that banks, which in the past constituted one of the weakest links to FX policy implementation, comply with the new policy measures.

Although the apex bank has secured its support and commitment to policy implementation, but routine regulatory checks are also helping to sustain market gains from the project.

The formal signing of the FX Code pact by participating banks symbolises a unified effort to promote transparency and trust but the apex bank regulator should take steps that guarantees that the lenders match their words with action.

Issued as a guideline for the foreign exchange market, the FX Code is backed by the authority of the CBN Act of 2007 and the Banks and Other Financial Institutions Act (BOFIA) of 2020.

These legislative instruments empower the CBN to establish and enforce directives regarding the standards financial institutions must follow in conducting foreign exchange business in Nigeria.

The FX Code, therefore, serves as an official directive that all market participants are expected to observe in their operations.

As part of compliance requirements, market participants must conduct a self-assessment of their adherence to the FX Code and submit a report detailing their level of compliance to the CBN by January 31, 2025.

Following this, all institutions engaged in the foreign exchange market must also provide the CBN with a detailed implementation plan outlining how they intend to achieve full compliance with the FX Code.

This plan must be formally approved and signed by the institution’s board of directors, and it must be accompanied by relevant extracts from the board meeting where the plan was reviewed and endorsed.

Other Policy Reforms

To tackle the pressing challenge of inflation, the CBN acted decisively by raising the Monetary Policy Rate by 875 basis points to 27.5 per cent in 2024—an essential move to contain inflation and restore stability.

“Our tight monetary policy stance has altered the previous dire trajectory, and we expect a downward trend in 2025. Inflation remains unacceptably high, but the signs are encouraging, particularly given that the full effects of monetary policy typically take 6-9 months to impact the consumer sector. Our commitment is unwavering: we will prioritize price stability until its benefits are felt by every Nigerian,” Cardoso said during the last bankers’ dinner held in Lagos.

The CBN under Cardoso has equally undertaken critical reforms to unify Nigeria’s exchange rate, eliminating distortions and restoring transparency. This unification has enabled us to clear the outstanding foreign exchange obligations, giving businesses—ranging from manufacturers to airlines—the confidence to plan and invest in the future.

Analysts insist that these measures under Cardoso have not only lifted the forex market and entrenched long-lasting stability but laid foundation for sustainable economic growth.

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