Nigeria lifts forex restrictions to lure remittance flows
TLDR
- Nigeria's central bank has eased rules on international money transfers, allowing International Money Transfer Operators (IMTOs) to quote the naira exchange rate based on prevailing market rates.
- The new rule removes the previous cap on transactions, enabling IMTOs to compete with rates offered in Nigeria's unofficial currency market.
- This move aims to attract billions of dollars being sent home by Nigerian citizens living abroad.
Nigeria’s central bank eased rules on international money transfers, taking another step in freeing up its volatile foreign exchange market to attract billions of dollars being sent home by citizens living abroad.
International Money Transfer Operators, also known as IMTOs, can now quote the naira exchange rate against the dollar “based on the prevailing market rates at the Nigerian Foreign Exchange Market on a willing seller, willing buyer basis,” the central bank said in a memo late Wednesday.
That scraps a previous cap on such transactions limiting the exchange rate to plus or minus 2.5% of the previous day’s closing rate in the official market. The new rule will enable IMTOs to better compete with rates offered in Nigeria’s unofficial currency market, where operators have typically offered more attractive rates.
Key Takeaways
According to the World Bank's estimates, Nigerians living abroad remitted a substantial $20.1 billion in 2022. However, a significant portion of these transactions occurs in the parallel market, bypassing the official foreign exchange market. This has exacerbated dollar scarcity issues, leading to persistent volatility and weakness in the naira. In response to these challenges, the central bank has taken a crucial step to distance itself from direct currency management. The recent move aims to unify the official and unofficial markets, fostering a more cohesive system and encouraging increased investor inflows, ultimately addressing concerns related to exchange rate volatility and currency strength.
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