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The Nigerian naira has experienced a significant gain of 4.49 percent against the dollar in just seven days of trading, thanks to the policy measures implemented by the Central Bank of Nigeria (CBN).
After reaching an all-time low on January 29, 2024, with a trading rate of N1,348.63 per USD at the official window, the local currency has seen a reversal in its depreciation trend.
This positive turnaround can be attributed to a series of CBN circulars that have had a calming effect on the foreign exchange (FX) market.
The first circular, released on January 29, focused on enhancing transparency and accurate price discovery in the financial markets.
This initiative aimed to unify the true level of the Naira, providing a clearer picture of its value.
On January 31, the CBN issued a letter to banks, harmonizing reporting requirements on foreign currency exposures.
This move leveled the playing field and improved liquidity in the market, leading to increased activity in the Nigerian Autonomous Foreign Exchange Market (NAFEM).
Another circular issued on the same day removed the allowable limit of exchange rates quoted by International Money Transfer Operators (IMTOs).
This decision allowed for diaspora remittances to be based on prevailing market rates at NAFEM, promoting increased remittances through official channels and reducing the reliance on alternative markets.
The CBN also reviewed the guidelines for international money transfer services on January 31, aiming to improve ease of doing business for IMTOs and provide clarity on permissible activities.
This move further facilitated a conducive environment for foreign exchange transactions.
Finally, on February 8, the CBN removed the spread on foreign exchange transactions at the interbank market.
This policy change promotes efficiency in the market-based price discovery system and enables authorized dealers to make binding two-way quotes in NAFEM.
The removal of restrictions is expected to spur market activity and reduce information asymmetry.
Overall, these five CBN circulars have played a vital role in stabilizing the FX market and boosting the value of the Nigerian naira.
This article was updated 10 months ago
