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To reform the forex market, the CBN releases a new FX code.

The Central Bank of Nigeria (CBN) has formally introduced the Nigeria Foreign Exchange (FX) Code, marking a significant step in the overhaul of the country’s foreign exchange market. This initiative, announced by CBN Governor Olayemi Cardoso, aims to enhance transparency, ethical conduct, and efficiency in Nigeria’s forex trading environment.

The launch event, held at the CBN Head Office in Abuja, was attended by key stakeholders, including representatives from commercial banks, financial institutions, and regulatory agencies. The FX Code, which has been in the works for months, is designed to align Nigeria’s forex market practices with global standards while addressing the unique challenges of the local market.

Governor Cardoso emphasized that the “era of opaque practices is over,” stating, “The FX Code marks a new era of compliance and accountability.” He highlighted that the Code is built on six core principles: ethics, governance, execution, information sharing, risk management, and compliance, alongside confirmation and settlement processes. These principles are intended to foster an environment of integrity, fairness, and transparency that will restore confidence in the Nigerian FX market.

The introduction of the FX Code is seen as a response to the long-standing issues of market manipulation, speculation, and the lack of transparency that have plagued Nigeria’s foreign exchange market. By setting clear guidelines, the CBN aims to reduce the volatility that has often led to significant disparities between official and parallel market rates, thus stabilizing the naira.

Market participants are now required to submit compliance reports detailing their adherence to the FX Code by January 31, 2025. Non-compliance could lead to swift and decisive sanctions, including monetary penalties as stipulated by the CBN Act 2007 and BOFIA Act 2020. This move is part of a broader strategy to ensure that all players in the market operate under the same set of rules, promoting a level playing field.

The banking sector and financial analysts have largely welcomed the FX Code. It’s seen as a step toward restoring investor confidence, both domestically and internationally. There’s an expectation that this will lead to increased liquidity and a more predictable FX environment, which could attract more foreign investment into Nigeria’s economy.

However, some industry insiders express concerns about the immediate implementation challenges, including the readiness of institutions to comply with the new standards and the potential short-term disruptions to market operations as participants adjust to the new rules.

The CBN’s launch of the FX Code is complemented by other recent reforms like the introduction of the Electronic Foreign Exchange Matching System (EFEMS) in December 2024, aimed at improving market transparency and efficiency. Together, these initiatives represent a comprehensive approach by the CBN to not only tackle current market inefficiencies but also to position Nigeria’s forex market for future growth and stability.

As the market adapts to these new regulations, the success of the FX Code will largely depend on the commitment of all market participants to uphold the principles it sets forth, the enforcement rigor by the CBN, and the overall economic environment in Nigeria.

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