On Thursday, the Nigerian Senate rejected a bill seeking to amend the Foreign Exchange Act of 2004, citing concerns that the proposed legislation could undermine current efforts by the Central Bank of Nigeria (CBN) and create confusion in the foreign exchange market.
The bill, titled “The Foreign Exchange (Control and Monitoring) Bill, 2024 (SB. 353),” was sponsored by Sani Musa (APC-Niger), Chairman of the Senate Committee on Finance, and was first introduced on February 20. The bill aimed to repeal the existing Foreign Exchange (Monitoring and Miscellaneous Provisions) Act and introduce new provisions for the control, monitoring, and supervision of transactions in the Foreign Exchange Market.
In his lead debate, Senator Musa emphasized the bill’s importance for stabilizing Nigeria’s currency and improving the national economy by facilitating foreign transactions and maintaining a balance of international payments.
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“The Bill seeks to stabilize the value of the currency by ensuring the liberalization of foreign exchange transactions to maintain an equilibrium of the balance of international payments,” Musa stated.
“It will also stabilize the value of the currency by ensuring liberalization of foreign exchange transactions and other foreign transactions by revitalizing market functionality.
“The newly introduced clauses will enable the CBN to determine the basic exchange rate of purchase and sale of foreign exchange.”
Despite the bill’s intentions, several senators expressed strong reservations about its implications. They argued that additional legislation to monitor or control the foreign exchange market, beyond what the CBN currently does, could be counterproductive.
Senator Solomon Adeola, Chairman of the Committee on Appropriation, and Senators Tokunbo Abiru and Aliyu Wadada, who chair the Committees on Banking, Insurance, and Other Financial Institutions, and Public Accounts respectively, voiced serious concerns. They noted that further regulation should originate from the executive branch to prevent confusion and potential crises in the foreign exchange sector.
Senator Ibrahim Dankwambo (APC-Gombe) argued that passing such a law would only confuse Nigerians, noting that any additional regulation should come from the executive to avoid disrupting the market. Senator Adams Oshiomhole (APC-Edo) pointed out the contradictions and negative implications of the proposed law, stating that it would effectively take over the CBN’s role in monetary policy regulation.
In light of these concerns, Senate President Godswill Akpabio urged Senator Musa to withdraw the proposed law for further consultations. However, Musa declined, leading Akpabio to call for a voice vote. The majority of lawmakers voted against the bill, rejecting it for a second reading.
The rejection of the bill is understood to have been borne by the need to preserve the critical role of the CBN in regulating Nigeria’s foreign exchange market. The CBN is responsible for determining the exchange rate and implementing policies to maintain economic stability. It is thus believed that introducing additional regulatory measures through the legislative branch could disrupt the current framework and lead to market instability.
CBN Sells $122.671 Million to Authorized Dealers to Stabilize Forex Market
Meanwhile, the CBN recently intervened in the foreign exchange market by selling $122.671 million to 46 authorized dealers. This move aims to promote stability and reduce market volatility in the forex market, according to a statement issued by Omolara Duke, the apex bank’s Director in charge of Financial Markets.
Ms. Duke detailed the transactions, stating that on July 10, $67.5 million was sold to 27 authorized dealers, while $2.5 million was bought from one authorized dealer. The bid range for these sales was between N1,480 and N1,500 to the dollar, with a value date for payments set for July 12, following a two-day settlement cycle. On July 11, an additional $55.171 million was sold to 19 authorized dealers at N1,540 to the dollar, with payments due by July 15.
Ms. Duke emphasized the importance of using foreign exchange purchases exclusively for trade-backed transactions, which must be reported within 72 hours. She highlighted that the CBN’s intervention through spot sales to authorized dealers using two-way quotes is designed to enhance liquidity and ensure stability in the FX market.
However, the current bid ranges indicate a shift from the apex bank’s previous supplies, which came with much lower rates targeted at FX rate convergence.
Earlier in the year, when the CBN took the initiative to bridge the widening gap in exchange rates by supplying BDC operators with dollars daily, the allocated funds were sold to BDCs at a fixed rate of N1,301/$ and lower, mirroring the lower band rate of executed spot transactions at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
The current supply rates and bid ranges are seen as indicators that the NAFEM and parallel markets have significantly closed their disparity.
However, these interventions have failed to effectively strengthen the naira or bring about the desired stability in the forex market. The ongoing challenges in the Nigerian forex market stem from several factors, but largely, the decline in the country’s oil production.
Ms. Duke reiterated the CBN’s commitment to ensuring stability in the FX market, stating that the bank will continue to supply foreign exchange to improve liquidity through spot sales to authorized dealers. She assured that the CBN would persist in its efforts to stabilize the market and reduce volatility.
However, economists point out that future interventions will need to address the underlying issues affecting the naira’s value and ensure that policies are consistently applied to achieve sustainable economic stability.