The Central Bank of Nigeria (CBN) has issued a new circular that removes the previous cap on exchange rates quoted by International Money Transfer Operators (IMTOs). This policy change marks a significant step towards liberalizing the foreign exchange market in Nigeria and could have implications for millions of Nigerians who rely on remittances from abroad.
What is the exchange rate cap and why was it removed?
Previously, IMTOs were required to quote rates within a permissible range of -2.5% to +2.5% around the previous day’s closing rate of the Nigerian Foreign Exchange Market. This regulation was aimed at maintaining stability and consistency in exchange rates used for international money transfers.
However, the latest circular from the CBN indicates a policy shift. IMTOs are now allowed to quote exchange rates for naira payouts to beneficiaries based on the prevailing market rates at the Nigerian Foreign Exchange Market. This approach follows the principle of a “willing seller, willing buyer” basis, meaning that exchange rates will be determined by the market forces of supply and demand without a fixed cap.
According to the CBN, the removal of the exchange rate cap is in line with its commitment to liberalize the Nigerian Foreign Exchange Market and enhance transparency and efficiency. The CBN also stated that the policy change is expected to increase the inflow of foreign exchange into the country and reduce the pressure on the naira.
What are the benefits of the policy change for Nigerians?
The removal of the exchange rate cap could have several benefits for Nigerians who engage in international money transfers, such as:
- More competitive pricing: With the exchange rate cap removed, IMTOs can offer more attractive rates to customers based on the prevailing market conditions. This could lead to more savings for customers and more choices for service providers.
- More forex liquidity: The policy change could also encourage more IMTOs to bring their foreign exchange supply into Nigeria, rather than keeping it abroad. This could increase the availability of forex in the country and ease the demand for dollars.
- More economic growth: The policy change could also boost the Nigerian economy by increasing the inflow of remittances, which are a major source of foreign exchange and income for many households. According to the World Bank, Nigeria received $21.7 billion in remittances in 2020, making it the sixth-largest recipient in the world. Remittances can support consumption, investment, and social welfare in the country.
What are the challenges of the policy change for Nigerians?
The removal of the exchange rate cap could also pose some challenges for Nigerians who engage in international money transfers, such as:
- More volatility: With the exchange rate cap removed, IMTOs can quote rates that fluctuate more widely depending on the market conditions. This could expose customers to more uncertainty and risk when sending or receiving money across borders.
- More regulation: The policy change could also require more regulation and oversight from the CBN to ensure that IMTOs comply with the rules and do not engage in unfair or fraudulent practices. The CBN has warned that it will sanction any IMTO that quotes rates outside the permissible range or fails to remit the forex to the CBN.
How can Nigerians take advantage of the policy change?
The removal of the exchange rate cap could offer Nigerians more opportunities to benefit from international money transfers, if they take the following steps:
- Compare rates: Customers should compare the rates offered by different IMTOs before choosing a service provider. They should also check the exchange rate history and trends to make informed decisions.
- Track transactions: Customers should track their transactions and confirm the receipt of funds by their beneficiaries. They should also report any issues or complaints to the CBN or the IMTO.
- Educate themselves: Customers should educate themselves about the foreign exchange market and the factors that affect the exchange rates. They should also be aware of the risks and costs involved in international money transfers.
Since the CBN has removed the exchange rate cap for IMTOs, allowing them to quote rates based on the prevailing market rates, the policy change will have positive and negative impacts for Nigerians who engage in international money transfers. Customers should be vigilant and proactive to take advantage of the policy change and avoid potential pitfalls.
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