CBN Authorizes IMTOs to Sell Forex on Official Market to Boost Remittance Flows

In a significant policy shift aimed at bolstering foreign exchange liquidity and enhancing the formal channels of remittance inflows, the Central Bank of Nigeria (CBN) has granted eligible International Money Transfer Operators (IMTOs) the authority to sell foreign exchange (FX) in Nigeria’s official market.

This initiative, effective immediately, is part of the CBN’s efforts to ensure the efficient operation of the foreign exchange markets and improve the remittance process.

The latest directive, as outlined in a circular signed by Dr. W. J. Kanya, CBN’s Acting Director of the Trade & Exchange Department, introduces several measures designed to facilitate access to naira liquidity for diaspora remittances.

“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,” the circular stated.

Under this new framework, IMTOs can directly access the CBN window or work through their Authorized Dealer Banks (ADBs) to carry out forex transactions. This policy intervention arrives at a critical juncture, with the official FX market struggling with liquidity issues.

Over the past month, the value of FX turnover on the NAFEM window has fluctuated between $83 million and $390 million, highlighting the pressing need for increased liquidity.

Operational Guidelines for IMTOs and ADBs

The CBN has provided clear guidelines to ensure that IMTOs and ADBs adhere to the new measures:

• Same-Day Settlement: Transactions executed and confirmed before noon on any trading day will qualify for same-day settlement, expediting liquidity for remittance beneficiaries.
• Transparent Pricing: The pricing for transactions with the CBN will be based on prevailing NAFEM rates, ensuring transparency and alignment with market standards.
• Daily Regulatory Returns: All participants are required to submit daily regulatory returns to the CBN, detailing the sources of funds to maintain accountability and transparency.
• Partner Bank Confirmation: IMTOs must confirm their partner banks and provide standard settlement instructions to ensure the smooth implementation of these measures.

Background and Recent Policy Changes

This initiative is part of a broader strategy by the CBN to enhance the efficiency of remittance inflows. In January 2024, the CBN removed the cap on exchange rates quoted by IMTOs, which previously had to be within a -2.5% to +2.5% range around the previous day’s closing rate of the Nigerian Foreign Exchange Market.

Further, the CBN revised its guidelines for IMTO operations, significantly raising the application fee for an IMTO license from N500,000 in 2014 to N10 million—a 1,900% increase. The CBN also established a minimum operating capital requirement for IMTOs at $1 million for foreign entities and an equivalent amount for local IMTOs.

Additionally, IMTOs were previously barred from purchasing foreign exchange from the domestic market to fulfill their obligations. This new circular effectively lifts that ban, allowing IMTOs to trade on the official market.

Collaborative Task Force

The CBN’s agreement with IMTOs to establish a Collaborative Task Force aimed at doubling remittance inflows into Nigeria is another key component of its strategy. This task force, reporting directly to CBN Governor Yemi Cardoso, is expected to play a pivotal role in achieving the bank’s remittance objectives. Last month, the CBN granted 14 new Approval-in-Principle (AIP) licenses to IMTOs, signaling the expanding landscape of money transfer operations in Nigeria.

Allowing IMTOs to sell foreign exchange on the official window is anticipated to significantly impact the official FX market. By enabling IMTOs to access naira liquidity directly through the CBN or via ADBs, the supply of foreign exchange in the official market is expected to increase. This, in turn, will reduce pressure on the parallel market and help stabilize exchange rates.

Despite the CBN’s proactive measures to enhance foreign exchange liquidity and stabilize the market, recent efforts to contain forex volatility have largely fallen short. The naira has continued to depreciate, trading around N1500/$1.

This underscores the challenges the CBN faces in its quest to stabilize the currency and the broader economic environment. The introduction of IMTOs into the official forex market is believed to be a bold step, but whether it will significantly change Nigeria’s FX market trajectory remains to be seen.