The Nigerian Naira experienced further losses against the United States Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Thursday, September 6. This marks the fourth consecutive day of depreciation for the domestic currency.

According to market data, the Naira weakened by 0.83 percent or ₦13.53 to sell for ₦1,639.41/$1 during the trading session. This represents a significant decline from the previous day’s closing price of ₦1,625.88/$1.

Depreciation Against Other Currencies

The Naira also faced pressure against other major currencies. It depreciated against the British Pound Sterling by ₦5.69 to close at ₦2,135.37/£1. Additionally, the local currency lost ₦7.14 against the Euro, ending the session at ₦1,799.82/€1.

Reduced FX Trading Activity

The value of foreign exchange trades recorded at NAFEX on Thursday declined by 9.7 percent or $19.97 million to $185.79 million. This is a significant decrease compared to the $205.76 million recorded on the previous day.

Black Market Also Sees Depreciation

The Naira’s downward trend was not limited to the official market. In the black market, the currency depreciated by N10 to close at N1,650/$1.

CBN’s Pause in Interventions

The Central Bank of Nigeria (CBN) has temporarily halted its recent interventions to stabilize the foreign exchange market. This decision comes after the CBN had previously pledged to address the supply gap and ensure market stability. The absence of CBN interventions has contributed to the Naira’s continued depreciation.

Impact on the Economy

The ongoing depreciation of the Naira has significant implications for the Nigerian economy. It can lead to higher prices for imported goods, inflation, and increased costs for businesses that rely on foreign currency. Additionally, it can put pressure on the country’s external reserves and impact the government’s ability to service its foreign debt.

Outlook for the Naira

The future outlook for the Naira remains uncertain. While the CBN’s decision to pause interventions is likely to contribute to further depreciation, the situation could change if the bank decides to resume its market operations.

Furthermore, factors such as global economic conditions, oil prices, and the government’s economic policies will also influence the Naira’s performance. It is essential for the CBN and the government to closely monitor the foreign exchange market and take appropriate measures to stabilize the Naira and mitigate its negative impact on the economy.

The Central Bank of Nigeria (CBN) is taking a proactive step to address naira liquidity challenges and attract more diaspora remittances through formal channels. In a recent circular, the bank announced new measures that will grant eligible International Money Transfer Operators (IMTOs) direct access to naira liquidity through the CBN window or via Authorized Dealer Banks (ADBs).

This move signifies the CBN’s commitment to a more efficient and reliable foreign exchange market in Nigeria.

The CBN’s new policy offers a streamlined process for IMTOs. They can now directly access the CBN window or go through their designated ADBs to execute foreign exchange transactions in the market. Transactions completed before noon on a trading day will be settled on the same day, ensuring swift delivery of funds to beneficiaries.

The pricing structure will be transparent, mirroring the rates established on the NAFEX (Nigeria Autonomous Foreign Exchange Market) platform. This ensures market-driven, fair value for the naira.

“Pricing on the CBN portal will mirror the NAFEX traded rates, which are based on an acceptable market benchmark,” the circular clarified.

Widening Access to Naira for Smoother Remittance Settlements

Previously, IMTOs faced limitations in accessing naira to settle remittance transactions. The new CBN policy aims to bridge this gap by providing them with wider access to local currency. This will allow for smoother and faster processing of remittances sent by Nigerians abroad to their families and loved ones back home.

“These measures are aimed at widening access to local currency liquidity for the timely settlement of diaspora remittances,” stated the circular signed by W. J. Kanya, Acting Director of the Trade and Exchange Department at the CBN.

Enhancing Transparency and Regulatory Oversight

The CBN has emphasized the importance of transparency and regulatory compliance in this new initiative. All participants, including IMTOs, ADBs, and the CBN, will be required to submit daily regulatory returns with detailed information on the sources of funds. This ensures a robust system that minimizes the risk of financial malpractice.

CBN’s Commitment to a Stronger Financial Ecosystem

The CBN’s recent actions demonstrate a multi-pronged approach to strengthening Nigeria’s financial ecosystem. The new measures for IMTOs build upon the earlier initiative from May 2024, where 14 IMTOs received approval-in-principle (AIP) to operate in the country. This move aimed to increase competition and innovation among remittance service providers, ultimately leading to lower transaction costs and improved financial inclusion for Nigerians.

“We are wasting no time driving progress to remove any bottlenecks hindering flows through formal channels permanently,” CBN Governor Olayemi Cardoso stated. “We have a determined pathway and a sequenced approach to tackling all challenges ahead, working hand in hand with key stakeholders in the remittance industry.”

Expected Benefits

The CBN’s focus on attracting diaspora remittances is crucial for Nigeria’s economy. Remittances are a significant source of foreign exchange inflow, contributing to national development and poverty reduction. By facilitating a more efficient remittance system, the CBN expects to see a significant increase in formal remittance flows.

This, in turn, is expected to:

Improve Naira Liquidity: Increased foreign exchange inflows will boost naira liquidity, making it readily available for businesses and individuals.

Enhance Market Efficiency: A more transparent and competitive foreign exchange market will lead to efficient price discovery and a more stable naira exchange rate.

Promote Economic Growth: Increased foreign exchange reserves and a stable naira exchange rate can create a more favorable environment for foreign investment and economic growth.

If You Ask Me

The CBN’s new measures hold significant promise for the future of Nigerian remittances. By addressing longstanding challenges and fostering a more transparent and efficient market, the bank is creating an environment that can attract record levels of diaspora remittances. This, in turn, will contribute to economic growth, improved financial inclusion, and a more stable foreign exchange market for Nigeria.

January 20, 2025

NAFEX