CBN Expands FX Channels to Strengthen Economy and Boost Dollar Inflows

The Central Bank of Nigeria (CBN) is intensifying efforts to enhance foreign exchange (FX) inflows, ensuring greater access for manufacturers and retail users.

Through various initiatives—ranging from fostering diaspora remittances, licensing new International Money Transfer Operators (IMTOs), implementing a market-driven FX model, and facilitating access to naira liquidity for IMTOs—the apex bank has streamlined the flow of dollars, strengthening economic growth.

Enhancing FX Stability and Market Confidence

Foreign capital inflows remain crucial for sustaining monetary and fiscal stability. Under the leadership of Governor Olayemi Cardoso, the CBN is implementing innovative policies to increase FX liquidity and ensure businesses have seamless access to foreign exchange.

Diaspora remittances, estimated at $23 billion annually, remain a dependable source of FX for Nigeria’s economy. The CBN’s reforms aim to further boost these inflows, aligning with its objective of doubling formal remittance receipts within a year. These efforts are geared toward reinforcing market confidence, developing a more inclusive banking system, and promoting exchange rate stability.

Market Reactions and Investor Confidence

Charlie Bird, Director of Trading at Verto, highlighted that Nigeria has become more attractive to foreign investors due to improved FX liquidity. Speaking at the Cordros Asset Management seminar, The Naira Playbook, he noted that foreign investors and airlines can now repatriate funds with greater ease, thanks to the CBN’s policies.

To sustain this positive trajectory, the CBN recently introduced two financial products aimed at Nigerians in the diaspora, encouraging them to channel more funds through formal banking systems.

Overhauling IMTO Guidelines

A key element of the CBN’s FX reform strategy is the revision of guidelines governing IMTOs, reinforcing transparency and efficiency in remittance transactions. A recent circular titled New Measures to Enhance Local Currency Liquidity for Settlement of Diaspora Remittances underscores the apex bank’s commitment to streamlining FX inflows through formal channels.

Under these revised regulations, IMTOs can now access naira liquidity from the CBN, facilitating quicker disbursement of remittances. Key provisions include:

• IMTOs must hold designated accounts with Authorized Dealer Banks (ADBs) for remittance settlements.
• ADBs are responsible for disbursing remittance funds to beneficiaries in naira, either via bank accounts or cash withdrawals (capped at $200).
• IMTOs are prohibited from sourcing foreign exchange from the local market to settle remittances.

To improve liquidity, eligible IMTOs can now purchase naira directly from the CBN or through their ADBs for settlement. This shift ensures a smoother flow of remittances while strengthening regulatory oversight.

Strengthening Compliance and Efficiency

To promote transparency, the CBN has mandated that all FX transactions executed before noon on a trading day must be settled the same day. Additionally, FX will be converted at prevailing Nigerian Autonomous Foreign Exchange Market (NAFEM) rates, as referenced by a recognized market benchmark.

IMTOs and ADBs are also required to submit daily regulatory reports detailing transaction sources, reinforcing accountability in Nigeria’s FX market.

Focus on Diaspora Engagement

As part of its broader strategy to attract more FX inflows, the CBN introduced two specialized accounts for Nigerians in the diaspora:

1. Non-Resident Nigerian Ordinary Account – Allows diaspora Nigerians to send foreign earnings into Nigeria and manage funds in foreign currency or naira. Supported deposits include salaries, allowances, and dividends, while withdrawals can cover family expenses, education, and healthcare.
2. Non-Resident Nigerian Investment Account – Facilitates diaspora investment in Nigeria’s financial markets, including bonds, fixed deposits, equities, government securities, and mortgage products.

Both accounts offer currency flexibility, allowing holders to maintain balances in either foreign currency or naira and convert funds at market rates through authorized dealers. The investment account is expected to drive participation in Nigeria’s financial instruments, such as Diaspora Bonds, fostering long-term economic development.

The Growing Role of Diaspora Remittances

Dr. Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria, emphasized that diaspora remittances play a crucial role in supplementing Nigeria’s FX reserves, alongside foreign direct and portfolio investments. He projected increased remittance inflows due to CBN’s continued reforms, reinforcing financial stability and price control.

Regional Vice President of Western Union Africa, Mohamed Touhami el Ouazzani, highlighted the significance of remittances, stating that they drive financial inclusion, spur entrepreneurship, and support infrastructure development. In 2023 alone, African countries received $90 billion in remittances, rivaling the GDP of entire nations.

A Future of Economic Resilience

As FX inflows grow, the CBN’s policies are laying the foundation for long-term economic stability. The focus on diaspora remittances, robust banking structures, and transparent FX market reforms underscores a strategic vision aimed at strengthening Nigeria’s financial ecosystem. With these initiatives, Nigeria is positioned to maintain a more liquid and resilient foreign exchange market, attracting sustained investment and fostering economic growth.