Banks now free to determine, fix forex rates – CBN

The Central Bank of Nigeria (CBN), on Friday, cleared the way for the banks to sell foreign exchange at rates determined by them, as part of the strategy by the apex bank to stabilise the naira.

Dr. Omolara Omotunde, the Director, Financial Markets Department of the CBN, said in a circular FMD/DIR/PUB/CIR/001/012 addressed to “All Authorized Dealers”, that the apex bank had decided to discontinue “any cap on the spread on interbank foreign exchange transactions and restrictions on the sale of interbank proceeds.”

The circular emerged on a day CBN Governor Olayemi Cardoso told the Senate that the bank had suspended granting of Ways and Means to the federal government until the settlement of the outstanding balance.

Consequent upon the removal of the caps on the spread on interbank foreign exchange transactions, the banks are now free to establish their own prices based on supply and demand.


This allows the market to determine what it considers a fair rate for foreign currencies, particularly the US dollar.

The banks now have more flexibility to sell FX to anyone they choose, and this change could result in a quicker and more convenient access to foreign currency for businesses and individuals.

The CBN said Authorized Dealers are to continue to conduct their foreign exchange transactions on a ‘Willing Buyer and Willing Seller’ basis and are to “strictly adhere to high ethical standards in their dealings in the foreign exchange markets. This includes but not limited to adopting appropriate price disclosures and transparency for transactions”.

But the CBN is demanding transparency from the banks, requiring them to clearly display their prices, refrain from deceiving customers, and report all transactions to it (CBN).

It promised to continue to monitor the market and make adjustments as required.

The CBN expects this new approach to promote fairness and efficiency in the FX market, eliminate artificial distortions and ensure that everyone can access FX at a reasonable price.

It was gathered that the apex bank also intends to encourage greater foreign investment by simplifying the process of buying and selling FX, attract more foreign investors with a view to stimulating the national economy and discourage the use of the black market.

With the banks determining their own prices, customers may find better deals on FX compared to the previous system while customers can compare the prices offered by different banks, as prices are set by the market.

International Money Transfer Operators (IMTOs) have started complying with the January 31, 2024 CBN directive stopping them from dollar transfers to Nigeria. These include WorldRemit and Western Union.

Payments are now to be made in naira in respect of inbound transfers of remittance services from outside the country.

Cardoso, fielding questions  from  the  Senate Joint Committee on Banking, Insurance and other Financial Institutions, Finance and National Planning on the  exchange rates and inflationary pressures in the economy, said the CBN would no longer honour requests for Ways and Means Advances by the Federal Government until the outstanding balances are settled.

The Ways and Means is a loan facility usually granted the federal government by the apex bank to finance shortfalls in the government budget.

Although the law limits advances under Ways and Means to five per cent of the previous year’s revenue, the facility has been abused over the years with the Debt Management Office (DMO) saying in 2022 that the federal government had borrowed a total of N18.16 trillion from the CBN, which was more than 40 per cent of the money supply in the economy.

And two months ago, the National Assembly approved the securitisation of the outstanding debit balance of N7.3 trillion of the Ways and Means Advances in the Consolidated Revenue Fund (CRF) of the Federal Government.

But Cardoso did not say yesterday whether the Federal Government had exceeded allowable threshold of Ways and Means Advances.

He merely insisted that the apex bank would not be a part of Ways and Means agreement with the Federal Government except it repaid all the outstanding debts.

The CBN governor said its position was in line with section (38) of the CBN Act (2007).

Cardoso said that the payment of the outstanding balance of the Ways and Means Advances would help to curtail inflation in the country.

“I am pleased to note the Fiscal Authorities efforts in discontinuing Ways and Means Advances. This is also in compliance with section (38) of the CBN Act (2007),” Cardoso said.