The Central Bank of Nigeria (CBN) has announced a significant increase in net foreign exchange flows, which rose to $25.4 billion between January and June 2024, representing a 55% year-over-year surge.
This remarkable growth is attributed to heightened capital importation and record-breaking diaspora remittances, signaling the effectiveness of recent policy measures implemented by the apex bank.
In a statement released on Wednesday, the CBN said that these positive developments are boosting market confidence and contributing to the stabilization of the Nigerian economy.
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“The CBN’s policy objectives are yielding tangible results and bolstering market confidence. Net foreign exchange flows rose to $25.4 billion between January and June, marking a 55% year-over-year increase. This growth has been driven by a rise in capital importation, which reached $6 billion in June 2024, and record inflows from diaspora remittances through formal channels,” the statement read.
As part of its ongoing efforts to enhance liquidity in the foreign exchange market, the CBN revealed that it has sold over $305 million to authorized dealers in the past three weeks through a two-way quote system. This system, which has been in place for several months, is designed to ensure a steady flow of foreign exchange in the interbank market, thus promoting a more transparent and efficient market environment.
Additionally, the CBN reported that it offered $876 million to meet bids submitted by customers during an auction concluded on Wednesday, August 7, 2024. This auction was conducted through the Retail Dutch Auction System (RDAS), a mechanism that facilitates direct FX sales to end users. The RDAS approach aims to reduce information asymmetry, support price discovery, and promote a more transparent market.
“In the latest testament to the Central Bank of Nigeria’s (CBN) ongoing commitment to support the proper functioning of the foreign exchange market by enhancing liquidity when necessary, the apex bank offered $876m to fulfill bids submitted by customers at an auction concluded on Wednesday, August 7, 2024,” the statement noted.
The apex bank reiterated its pledge to provide transparent access to foreign exchange for all legitimate customers.
CBN’s Limited Role in FX Turnover
The CBN also disclosed that its contribution to the $43 billion foreign exchange turnover recorded in the official market as of July 2024 was less than 5%. This statistic underscores the growing robustness and diversification of liquidity sources within the FX market, which has contributed to the sustained convergence of exchange rates across all market segments.
“The foreign exchange market is also showing signs of improvement and increased depth, with more robust and diversified sources of liquidity contributing to the sustained convergence of exchange rates across all segments of the market,” the statement added.
The CBN’s policy measures, particularly those targeting the foreign exchange market, are increasingly seen as critical to Nigeria’s economic recovery and stability. The central bank has been working to create a transparent, market-driven FX environment, a goal that it believes is crucial for fostering confidence among market participants and ensuring the overall stability of the Nigerian economy.
The recent auction, where $876.26 million was sold at N1,495/$1 to 26 qualified banks, is the largest FX auction since Yemi Cardoso took over as the CBN governor. According to Dr. Omolara Omotunde Duke, Director of the Financial Markets Department, the auction aimed to reduce demand pressure in the FX market and promote price discovery.
While the total bid received was $1.18 billion from 32 dealer banks, the CBN supplied only about 75% of this amount, with some bids disqualified due to non-compliance with deadlines or incorrect submissions.
The CBN said it remains committed to supporting a stable and transparent foreign exchange market. This is notable in its continuous adjustment of its policies and interventions. The apex bank aims to sustain the positive momentum in foreign exchange flows, enhance market liquidity, and ensure that the needs of all legitimate FX market participants are met.
This ongoing effort is expected to further bolster market confidence and support the overall stability of the Nigerian economy as it navigates the challenges posed by global economic uncertainties and domestic economic pressures.