Ayodeji Ayenuwa
The Central Bank of Nigeria (CBN) is cracking down on forex arbitrage within Nigeria, issuing a severe warning to International Money Transfer Operators (IMTOs) operating in the country. The CBN is concerned about the sale of foreign exchange (forex) at rates exceeding the approved NAFEX (Nigerian Autonomous Foreign Exchange Rate Fixing) rates, which have a permissible range of plus or minus 2.5%. Currently, the NAFEX rate is at N773.04 per US dollar.
The CBN initially laid out guidelines and conditions for IMTOs in a circular dated August 9, 2023, focusing on payment methods, pricing, and rate quotations. However, a more recent circular, dated September 13, 2023, and titled ‘Rate quote and other market conduct by International Money Transfer Operators’, revealed that the CBN had discovered violations during routine checks on IMTO activities. These violations primarily centered around arbitrary rate quotations that exceeded the allowable range, a clear breach of existing regulations.
The circular, signed by the CBN Director of Trade and Exchange Department, Dr. W.J. Kanya says in part “For the avoidance of doubt, International Money Transfer Operators are required to quote rate within the allowable limit of -2.5 per cent to +2.5 per cent around the previous day’s closing rate of the Nigerian Foreign Exchange Market for their transactions”.
To provide context, IMTOs are strictly prohibited from selling forex at rates exceeding 2.5% above the previous day’s NAFEX rates, which equates to an approximate rate of N792.73 based on the N773.04 rate.
To enforce compliance, the Central Bank of Nigeria has outlined potential sanctions, including mandating IMTOs to sell their forex proceeds directly to the CBN, suspending their international money transfer operations, and, in severe cases, revoking their operating licenses.
The CBN’s decisive action is in response to the ongoing issue of forex arbitrage exploited by IMTOs. However, its effectiveness remains uncertain due to the persistent disparity between official and black-market exchange rates. This gap is often a result of forex supply limitations and increasing demand pressures, creating a complex challenge for the CBN.
There is also concern that retail forex buyers may attempt to exploit arbitrage opportunities, potentially undermining the overall effectiveness of the CBN’s measures.
Taking all factors into account, the CBN’s recent actions aim to curb forex arbitrage within Nigeria, but success in achieving this goal remains uncertain due to the intricate dynamics of the forex market.
