By Sodiq Adelakun
The Naira demonstrated remarkable resilience against the US dollar throughout March 2024, signaling a pivotal moment in Nigeria’s exchange rate trajectory.
Official data revealed that the Naira concluded the month at an impressive rate of N1309/$1 on the final trading day, a substantial surge from its position of N1595.11/$1 recorded at the end of February 2024.
This notable 21.8 percent appreciation stands as a testament to the efficacy of diverse forex policies, strategies, and interventions meticulously orchestrated by the Central Bank of Nigeria (CBN).
These concerted efforts were all meticulously tailored towards the overarching objectives of stabilising and fortifying the national currency amidst a dynamic economic landscape.
The unprecedented surge in the Naira’s value underscores the CBN’s resolute commitment to fostering economic stability and bolstering investor confidence.
The strategic interventions implemented by the central bank have not only bolstered the Naira’s resilience but have also set a positive precedent for sustainable growth and development within Nigeria’s financial markets.
Analysts have hailed this remarkable turnaround as a significant milestone for Nigeria’s exchange rate policy, emphasising its potential to stimulate economic growth, attract foreign investment, and enhance overall macroeconomic stability.
In the parallel market, the Naira saw an even more pronounced recovery. The exchange rate improved from N1600/$1 in February to N1250/$1 in March, representing a 28 percent gain in one month highlighting the effectiveness of the measures taken to bridge the gap between the official and unofficial currency markets.
The gains in the official and parallel market are the largest seen in over five years. Before now, the exchange rate was fixed at about N450/$1 for almost two years and around N380/$1 between 2020 and early 2021.
Drivers of the Naira’s Appreciation
On the official end of the market, the apex bank started by addressing suspected cases of excessive foreign currency speculation and hoarding from Nigerian banks.
In a circular titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” the CBN stated that banks’ Net Open Position (NOP) must not exceed 20 percent short (owning more than owed) or 0 percent long (owning no more than the bank’s shareholder funds not reduced by losses) of the bank’s shareholders’ funds.
Experts suggest this removed a huge area of speculation from the market, ensuring that only genuine demand for forex was being seen.
The apex bank also announced the complete clearance of the valid foreign exchange backlog. They stated that they concluded the payment of $1.5 billion to settle obligations to bank customers, effectively settling the residual balance of the FX backlog.
In a concerted effort to bolster the exchange rate and enhance retail market stability, Nigeria has implemented a series of strategic forex policies, signaling a proactive stance towards managing currency dynamics.
Among the pivotal measures undertaken, the Central Bank of Nigeria (CBN) allocated $20,000 to each Bureau De Change (BDC) at competitive rates, effectively lifting the exchange rate cap for International Money Transfer Operators.
A significant shift in regulatory guidelines saw an increase in the share capital requirements for BDC operators, setting new thresholds at N2 billion and N500 million for Tier 1 and Tier 2 licenses, respectively.
In a bid to streamline operations and enforce regulatory standards, the apex bank revoked over 4,000 licenses of BDC operators, signaling a stringent approach towards maintaining market integrity and efficiency.
Additionally, to manage demand effectively, the CBN introduced a cap on foreign currency purchases for school fees, limiting transactions to $10,000 per customer annually.
These strategic initiatives underscore the CBN’s commitment to fostering a resilient and well-regulated retail forex market, aimed at promoting transparency, competitiveness, and sustainability.
The proactive measures implemented reflect a proactive stance towards managing currency dynamics and ensuring stability within Nigeria’s financial ecosystem.
As the nation navigates through economic challenges, these policies serve as pillars for strengthening the exchange rate and fostering investor confidence in Nigeria’s financial markets.