CBN’s FX Code policy turns tide, impacts market growth, stability

Six months after the Central Bank of Nigeria (CBN) introduced the Nigerian Foreign Exchange Code (FX Code), signs of market stability and renewed investor confidence are emerging. From a stronger naira and rising foreign reserves to improved governance standards in forex transactions, the FX Code is reshaping the narrative around Nigeria’s foreign exchange management, writes JOSEPH INOKOTONG:

Globally, the quest for a transparent and efficient foreign exchange market has continued to be top priority of central bank management. For Nigeria, the inauguration of the Nigerian Foreign Exchange Code (FX Code) was a strategic step to move beyond rhetoric, and entrench accountability, compliance, and transparency in the country’s foreign exchange market.

Launched in February 2025 by CBN Governor Olayemi Cardoso as part of broader financial market reforms, the FX Code was designed to promote transparency, ethical conduct, and accountability among all market participants. Today, the code is credited with helping the naira recover from historic lows, restoring trust in forex dealings, and aligning Nigeria with international standards.

A Strategic Shift Towards Market Integrity

The inauguration of the FX Code marked a break from past practices of opacity and multiple exchange rates that undermined market integrity. “This is not just a recommendation, it is an enforceable standard,” Cardoso declared at the unveiling, signaling the regulator’s intent to hold institutions accountable.

Cardoso cited past abuses such as unchecked ways-and-means financing, insider privileges, and systemic ethical breaches as key drivers of currency depreciation and inflation. “Those practices must never return,” he said, warning of strict penalties under the CBN Act 2007 and BOFIA Act 2020 for any breaches of the FX Code.

The FX Code, adapted from the Global FX Code (first introduced in 2017), has been domesticated to suit Nigeria’s unique environment. It contains six core principles and 52 sub-principles covering ethics, governance, execution, risk management, information sharing, and settlement protocols. Nigeria now joins 54 central banks committed to these global best practices.

Measurable Gains: Naira Strengthens, Reserves Climb

Since implementation, the FX Code has contributed to a stronger naira, which appreciated from ₦1,585/$ in February to about ₦1,530/$ in both official and parallel markets. Analysts, including those from Cordros Securities, attribute this rally to improved FX liquidity, growing diaspora remittances, and sustained investor confidence.

Nigeria’s foreign reserves have also surged, reaching $40.11 billion in July, the highest level since November 2024, representing approximately 9.5 months of import cover. This buffer offers a critical cushion against external shocks and further boosts confidence in the CBN’s policy direction.

Industry Support and Institutional Buy-In

The FX Code has received wide support from commercial banks, which have formally signed onto the framework. The CBN now requires each institution to submit an implementation plan, approved by their board of directors, detailing how they will achieve full compliance by January 31, 2025.

Deputy Governor of Economic Policy, Muhammad Sani Abdullahi, and Director of Financial Markets, Dr. Omolara Duke, played key roles in articulating the principles and rallying stakeholders. Dr. Duke noted that the goal is for Nigeria to emerge as “a beacon of trust and integrity” in global FX markets. “The true power of the Code lies in its ability to create a legacy. Our goal is to ensure that Nigeria’s foreign exchange market is seen as a beacon of trust and integrity on the global stage,” Dr. Duke said.

President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, lauded the FX Code’s impact, linking the naira’s rebound to improved policy clarity, rising diaspora inflows, and stricter regulatory enforcement.

Gwadabe hinged the naira rally to the newly implemented Foreign Exchange (FX) Code, rising investors confidence, and policies supporting more dollar inflows through diaspora remittances.

He backed the apex bank’s position that the FX Code is comprehensively addressing various aspects of market conduct and practice, it is not intended to be exhaustive.

He said the policy authorises the CBN to establish and enforce directives regarding the standards for financial institutions under which FX deals are to be conducted.

Gwadabe said the code will further entrench transparency and accountability in the FX market, and continually sustain the naira rally.

He also backed CBN’s position that all institutions engaged in the foreign exchange market must also provide the CBN with a detailed implementation plan outlining how they intend to achieve full compliance with the FX Code.

These plans are expected to be formally approved and signed by the institution’s board of directors, and it must be accompanied by relevant extracts from the board meeting where the plan was reviewed and endorsed.

In emailed report to investors, Head of Research at Commercio Partners, Ifeanyi Ubah, said the CBN retained the Monetary Policy Rate (MPR) at 27.5 per cent following the conclusion of its 301st Monetary Policy Committee (MPC) meeting. He said the need to sustain the recent disinflationary trend and keep price pressures under control could be responsible for the rate retention. Analysts were divided ahead of the meeting, with some predicting a marginal hike to bolster the naira and others expecting a hold due to concerns about sluggish economic growth. Ubah however, insisted that the decision suggests that the CBN is prioritizing macroeconomic stability while supporting the gradual disinflation trend.

CEO, Countryside Markets Limited, Stevens Michael, said: “For me, the whole idea is just to ensure that there is a lot more sanity in the foreign exchange market because those characters have really created a whole lot of problems over the years in the foreign exchange market”.

“I think that is what the CBN is trying to do and the more we’re able to sanitise the markets, I think the more stability it will achieve in the foreign exchange market,” he said.

Challenges and the Path Forward

Despite these gains, the CBN remains cautious. Cardoso warned that compliance enforcement would be strict, given the banking sector’s past record of undermining FX reforms. “We will not tolerate any attempt to revert to past practices,” he said, urging institutions to back their words with verifiable action. To ensure accountability, the CBN has instituted routine compliance checks and mandated self-assessments from all participants in the forex market. These evaluations will serve as the basis for further regulatory decisions and sanctions.

Anchoring Broader Monetary Policy Reforms

The FX Code is part of a broader suite of reforms initiated by the Cardoso-led CBN to stabilize the economy. Notably, the bank raised the Monetary Policy Rate (MPR) by 875 basis points to 27.5% in 2024 to combat inflation, which had been fueled by prior monetary excesses and exchange rate distortions. “Inflation is still too high, but our policies are beginning to take effect,” Cardoso said recently. He projected a disinflationary trend continuing into 2025 as the effects of tighter policy and exchange rate unification take hold.

Analysts agree. According to Ifeanyi Ubah of Commercio Partners, the decision to hold the MPR in the last MPC meeting underscores the CBN’s focus on macroeconomic stability. “The FX reforms are bearing fruit, and monetary tightening is starting to anchor expectations,” he wrote in a note to investors.

Other policy reforms

To tackle the pressing challenge of inflation, the CBN acted decisively by raising the Monetary Policy Rate by 875 basis points to 27.5 per cent in 2024, an essential move to contain inflation and restore stability. “Our tight monetary policy stance has altered the previous dire trajectory, and we expect a downward trend in 2025. Inflation remains unacceptably high, but the signs are encouraging, particularly given that the full effects of monetary policy typically take 6-9 months to impact the consumer sector. Our commitment is unwavering: we will prioritize price stability until its benefits are felt by every Nigerian,” Cardoso said during the last bankers’ dinner held in Lagos. The CBN under Cardoso has equally undertaken critical reforms to unify Nigeria’s exchange rate, eliminating distortions and restoring transparency. This unification has enabled us to clear the outstanding foreign exchange obligations, giving businesses—ranging from manufacturers to airlines—the confidence to plan and invest in the future. Analysts insist that these measures under Cardoso have not only lifted the forex market and entrenched long-lasting stability but laid foundation for sustainable economic growth.

A Foundation for Long-Term Stability

With the FX Code now an operational pillar of Nigeria’s forex regime, the CBN appears poised to entrench lasting reform in one of the country’s most volatile economic segments. While challenges remain, especially around full institutional compliance, the early signs point to a return of sanity in the market. As Nigeria aims to attract more foreign capital and restore public trust, the FX Code stands as a clear signal of commitment to ethical conduct, transparent operations, and global best practices.

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