By Ademola Bakare
The national discourse and consensus over the Nigerian foreign exchange market prior the appointment of Olayemi Cardoso, Governor of the nation’s foremost bank, Central Bank of Nigeria {CBN} was marked by instability, chaos, and multiple exchange rate platforms. It was an era plagued with arbitrage tendencies and distortions, resulting into unpredictability and opaqueness.
Predating Cardoso’s appointment, and his reforms, the foreign exchange market was riddled with multiple exchange rates, lacked transparency, and volatile with the Naira experiencing fluctuations in value.
The turbulence was further complicated by a huge $7 billion backlog of unmet commitments. Barely seventeen months in office, catalogue of reforms rolled out by the governor on assumption of office to stem the tide of recklessness and opaqueness in the financial sector ecosystem have begun to yield appreciable results.
Poised to ensure a robust regulatory framework to support economic growth and stability, the CBN embarked on inclusive but forensic study of the market to position the economy for the projected $1 trillion economy.
Various engagements by the CBN with critical high-net worth financial technocrats and bureaucrats within the past year is testament to the robustness of the economy, stable exchange rate, and improved investors’ confidence in Nigeria.
The CBN has within this time frame grew the foreign reserves from miserable $23 million to about $41 million as of December 2024.
A product of some the engagements was the launch of the Nigeria Foreign Exchange Code (FX Code) by the bank, established as a foreign exchange market built on integrity, fairness, transparency and efficiency. The FX Code the CBN said “represents a decisive step forward, setting clear, and enforceable standards for ethical conduct, transparency, and good governance in our foreign exchange market”. A clear, and firm amber light signal that it is the dawn of a new Nigeria foreign exchange market is birthed to roadmap the future, yet grounded in the unpleasant hard lessons of the past.
With the unification of the exchange rate by President Bola Tinubu, who abolished multiple exchange rate regime that created privileges for few individuals, severely undermined the integrity of the Nigerian foreign exchange market. Olayemi Cardoso, the CBN governor at a forum recently in Abuja gave a classic example of the disputed and unverified $7bn foreign exchange backlog that took over a year to verify, unearthed multiple unethical, and even illegal practices that are unbefitting of a nation.
He said the forensic verification process is almost nearing completion, as he promised that final settlements would be made soon to bring closure to that unenviable era.
The governor at the occasion also lamented the inglorious era of ways-and-means-financing, particularly by the last administration which inflicted unimaginable damage on the economy. He said the practice contributed immensely to inflation, currency depreciation, and eroded public confidence in the country. Continuing, he miffed at the unethical behaviours and systemic abuses perpetrated by some privileged individuals. He said their activities eroded public trust and harmed the economy, vowing that the government will not tolerate any attempts to revert to those practices. He warned that, any individual or institution that violates the FX Code will face a swift and decisive sanctions from the government.
In furtherance of the reforms in the financial sector ecosystem, and the economy in general, the FX Code ‘is a firm rejection of such distortions and an equally firm commitment to a future, defined by fairness, trust and market driven principles’, he stressed.
The CBN governor assured that market reform is already yielding dividends, noting that year 2024 was marked by structural reforms that sought to return the Naira to a freely determined market price. The reforms which include the discontinuation of quasi-fiscal interventions, unification of the exchange rate windows, clearing the backlog of foreign exchange commitments, and recalibrating the three monetary policy tools were all necessary to redirect the economy, restore order and credibility to the FX market, as well as refocusing the CBN on its core mandates.
Olayemi Cardoso expressed satisfaction with the performance of the newly introduced Electronic Foreign Exchange Matching System (EFEMS) that has enhanced market transparency and efficiency.
Ademola Bakare, a financial analyst, writes from Abuja
