The 6 Pillars of CBN’s New FX Code And How They Will Boost Liquidity, Transparency, Naira Stability
- The Central Bank of Nigeria has launched the FX Code, a raft of rules guiding the foreign exchange market operations
- The bank designed the code to tackle issues of risks in Nigeria's burgeoning financial system and boost market integrity
- The new code contains six core pillars, aimed at addressing the FX market and guiding market participants
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Legit.ng’s Pascal Oparada has reported on tech, energy, stocks, investment and the economy for over a decade.
The Central Bank of Nigeria (CBN) released a new FX Code on Monday, January 27, 2025, to boost liquidity, and transparency and guide market participants in Nigeria’s foreign exchange market.
The new code contains a set of principles recognised as good practices in the global FX exchange market.
Source: Twitter
Why CBN designed the new FX code
The apex bank designed the code to address risks in Nigeria’s growing financial system while boosting the integrity and functionality of the FX market.
The FX Code’s document disclosed that it was developed in response to Nigeria’s financial transformation over the years.
It seeks to establish standards that ensure the efficient functioning of the wholesale FX market, boosting the country’s exchange rate sector.
“The FX Code is intended to facilitate a fair, liquid, and transparent market environment that inspires confidence among participants,” the document states.
CBN designed the code to promote a robust market with fairness, openness, and adequate transparency, allowing participants to engage in competitive rates that reflect accurate market information.
The six pillars of the new code
It lists behavioural standards and best practices that align with global standards.
Market dealers covered by the new code are licenced traders by CBN under the CBN Act 2007 and the Bank of Other Financial Institutions Act (BOFIA) 2020, and other entities in wholesale trading as part of their licenses.
It is anchored around six core pillars: Governance, execution, information sharing, risk management and compliance.
It also addresses the importance of confirmation and settlement processes, encouraging participants to implement post-trade practices that allow for smooth and timely settlements of transactions.
Experts say the code aims to position Nigeria’s FX market as one of the most efficient with global standards.
The Nigerian forex market has been dogged by irregularities and irresponsible trading by market participants, leading to the accumulation of FX claims by investors and foreign airlines.
CBN’s actions stabilise the naira
Last November, the apex bank introduced the Bloomberg BMatching System to enhance transparency in the forex market, mandating banks to move to the new platform.
CBN also pegged forex trading at $100,000 for market dealers in the new Nigeria Foreign Exchange Market (NFEM).
The naira has stabilised considerably since the introduction of the Electronic Foreign Exchange Market System (EFEMS).
The local currency has hovered between N1,548 and N1,555 per dollar in the last four weeks, fueling beliefs that it may have found its true value in the market.
CBN makes changes to forex trading
Legit.ng earlier reported that CBN had issued new guidelines requiring interbank foreign exchange trading using the Electronic Foreign Exchange Matching System to have a minimum trade size of $100,000.
This is in an attempt to ensure efficiency, transparency, and compliance in Nigeria's foreign exchange market.
The guideline was signed by Dr. Omolara Duke, director of the CBN's financial markets department, on November 25, 2024.
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Source: Legit.ng
