Push to restore sanity with CBN Fx code

The Nigerian Foreign Exchange market has seen a measure of stability in recent days following the launch of the Nigeria Foreign Exchange Code (FX Code) by a major step by the Central Bank of Nigeria (CBN). Nigeria follows a flexible exchange rate system, meaning the value of the naira is determined by supply and demand […]

The Nigerian Foreign Exchange market has seen a measure of stability in recent days following the launch of the Nigeria Foreign Exchange Code (FX Code) by a major step by the Central Bank of Nigeria (CBN).

Nigeria follows a flexible exchange rate system, meaning the value of the naira is determined by supply and demand in the foreign exchange market.

With code, Nigeria joins 54 other central banks, including those of Brazil, Canada, Russia, Angola, and South Africa, in recognising and implementing these standards.

The FX Code was introduced to address new challenges in the financial markets and respond to changing conditions in the foreign exchange sector. It establishes a set of principles that promote ethical practices and ensure the smooth operation of the foreign exchange market.

The introduction of the FX Code comes at a time when Nigeria’s foreign exchange market has faced serious challenges. These include speculative trading, price manipulation, and concerns over market integrity.

The FX Code was developed in response to irregularities in the foreign exchange market that have negatively impacted the economy. One major issue has been speculative trading, where certain players manipulate the market to influence exchange rates, causing unnecessary fluctuations.

The absence of clear regulations has led to inconsistent FX supply, creating liquidity shortages that affect businesses and individuals.

Analysts have consistently argued that the unpredictability of the market has made foreign investors hesitant, leading to an erosion of investor confidence.

The FX Code is based on six key principles that define how market participants should operate. The first is ethics, which requires all participants to act professionally and fairly to maintain the integrity of the market. The second is governance, ensuring that institutions involved in FX trading have strong internal oversight and compliance measures. The third principle, execution, mandates that transactions must be negotiated and carried out transparently to promote fair pricing and liquidity.

The fourth, information sharing, emphasises the importance of clear and accurate communication while also protecting confidential information to prevent market abuse. The fifth principle, risk management and compliance, requires institutions to have effective systems in place to identify, monitor, and report risks associated with FX trading.

Finally, confirmation with settlement ensures that transactions are completed efficiently and predictably to avoid disruptions in the market. These principles are in line with international best practices, making Nigeria’s FX market more reliable and globally competitive.

The FX Code applies to all participants in the foreign exchange market. These include Authorised Dealers, which are financial institutions licensed by the CBN under the CBN Act of 2007 and the Bank and Other Financial Institutions Act (BOFIA) of 2020.

The FX Code marks an important step towards a more transparent and efficient foreign exchange market in Nigeria. While its success will depend on strict enforcement and compliance by market participants, it provides a much-needed framework to improve market integrity and investor confidence. If properly implemented, the FX Code could play a key role in stabilising the naira and supporting long-term economic growth.

The FX Code requires all market participants to ensure that illegal financial transfers are prevented and that strong policies against money laundering are put in place. These measures are necessary to protect the integrity of Nigeria’s financial markets and the global financial system.

Dr Omolara Duke, Director of the Financial Market Department at the CBN, described the launch of the Nigerian Foreign Exchange (FX) Code as a major achievement, reflecting the effort put into shaping a better future for Nigeria’s foreign exchange market.

She explained that the Central Bank of Nigeria (CBN) created the FX Code because it believes Nigeria deserves a market that is ethical, transparent, and resilient. The goal was to develop a system that serves everyone fairly and builds confidence both within and outside the country.

In the past, a lack of trust affected the smooth operation of the foreign exchange market. To address this issue, the Global FX Code was created through a partnership between public and private sector players across different financial markets worldwide. Now, the Nigerian FX Code is being introduced as a set of guidelines to promote integrity and ensure the effective operation of the foreign exchange market.

Also speaking at the launch, Mohammed Sani Abdullahi, deputy governor of Economic Policy, emphasised that the FX Code was developed through collaboration between central banks, the Bank for International Settlements (BIS), private sector players, and foreign exchange infrastructure providers from different countries.

Abdullahi also acknowledged that the CBN itself has faced ethical issues in the past. To demonstrate its commitment to the new standards, the central bank is signing its own version of the FX Code, holding itself to the same—if not higher—standards.

He described the launch of the FX Code as the beginning of a new era—one focused on accountability, ethics, and compliance.

He said the principles in the FX Code have been carefully structured into 52 detailed guidelines, which will soon be published online.

The CBN governor, Olayemi Cardoso, in his message to bank CEOs urged them to take responsibility for its success or failure.

He said the FX Code represents a turning point by setting clear standards for ethical behaviour, transparency, and good governance in Nigeria’s FX market.

Cardoso warned that the era of opaque practices is over. “Any institution or individual who tries to undermine the integrity of Nigeria’s financial markets will face serious consequences,” he said.