Optimism as sanity returns to market on sustained FX Code implementation

Less than a month after the Central Bank of Nigeria (CBN) rolled out the Nigeria Foreign Exchange (FX) Code, JOSEPH CHIBUEZE, reports that sanity is gradually returning to the market with traders now able to project the exchange value of the naira.

The Central Bank of Nigeria (CBN) recently took a major step to enhance transparency and boost market confidence with the launch of the Nigeria Foreign Exchange Code (FX Code). The FX Code policy implementation has reduced market manipulation and hoarding of the greenback with analysts predicting a sustained naira rally over renewed confidence in the market.

Globally, foreign exchange markets thrive on ethics, transparency and regulatory compliance under the supervision of central banks. What the FX Code did was to send a strong message to FX traders and investors that an era of opaque practices in the market was over. A new period of transparency had begun with the CBN rolling out guidelines on the market operations.

The Governor of the CBN, Olayemi Cardoso, at the launch of the FX Code, emphasized integrity, fairness, transparency and efficiency as critical pillars for driving Nigeria’s economic growth and stability. He said 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.

“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,” he said.

Analysts said FX speculators lost over N10 billion in the current naira rally and will record more losses as dollar holders dump it in the open market.
One forex dealer said he offloaded dollar stockpiled for months, over fears of losing more funds.

“We are happy the naira is stabilising at both the official markets, but sad over capital losses. This is not the time to hoard the dollar because the naira is fast finding its feet, Abdul Abiodun, an FX trader said.

Other FX operators said the era of forex speculation and distortions in the domestic foreign exchange market came to an end with the ongoing implementation of the FX Code.

The ongoing rally of the naira continued from the previous week’s success story. Analysts from Cordros Securities said the naira last week strengthened significantly, appreciating by 3.8 per cent week-on-week at the Nigerian Autonomous Foreign Exchange Market (NAFEM).

This sharp increase is attributed to the policies implemented by the CBN, especially the FX code, which have influenced market dynamics and contributed to the currency’s strengthening.

The latest movement marks a return to that range, reflecting the impact of recent monetary and foreign exchange measures introduced by the CBN to stabilise the currency and improve market confidence.

Managing Director, Afrinvest West Africa Limited, Ike Chioke, had naira gained 4.3 per cent month-on-month against the greenback. Similarly, the parallel market rate appreciated by nearly two per cent to N1,560/$1, he said. He projected a sustained positive naira performance this month, supported by CBN’s efforts at entrenching transparency in market operations.

“In the new month, we expect the naira to remain on a positive trajectory bolstered by CBN’s effort at currency stability,” he said in an email note to investors.

The naira rally was also driven by inflows from foreign portfolio investors (FPIs), substantial contributions from international oil companies (IOCs) and the CBN’s $18.4 million intervention to authorised dealers.

Other analysts also mentioned the renewed interest of FPIs in the FX market — driven by improved market confidence, a more efficient FX framework and strengthening macroeconomic conditions — alongside sustained market interventions, is expected to continually support naira stability.

On his part, the President of the Association of Bureaux de Change Operators of Nigeria (ABCON), Dr 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 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.

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

CEO of 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 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.

Commercial banks are major stakeholders in the FX Code implementation. Analysts have therefore called on the CBN to institute 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, routine regulatory checks will help sustain market gains from the project.

The formal signing by participating banks symbolises a unified effort to promote transparency and trust but the apex bank regulator should take steps that guarantee 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.

The 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 with 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.

The CBN has also taken strategic steps to tackle inflation. The apex bank recently hosted the Monetary Policy Forum 2025, featuring fiscal authorities, legislative, private sector, development partners, subject-matter experts, and scholars with the theme: ‘Managing the Disinflation Process’.

Cardoso explained that the apex bank’s focus is to sustain price stability, the planned transition to an inflation-targeting framework, and strategies to restore purchasing power and ease economic hardship.

The CBN is continuing its disciplined approach to monetary policy, aimed at curbing inflation and stabilizing the economy.

“These actions have yielded measurable progress: relative stability in the FX market, narrowing exchange rate disparities, and a rise in external reserves to over $40 billion as of December 2024.

“The CBN also focused on strengthening the banking sector, introducing new minimum capital requirements for banks (effective March 2026) to ensure resilience and position Nigeria’s banking industry for a $1 trillion economy,” he said.