Nigeria Removes Exchange Rate Cap to Boost Diaspora Inflows

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Nigeria has taken a significant step in its foreign exchange policy by removing the exchange rate cap for International Money Transfer Operators (IMTOs). The Central Bank of Nigeria (CBN) issued a circular on January 31, 2024, eliminating the previous
-2.5% to +2.5% cap on exchange rates. This move is expected to foster a more transparent and market-driven foreign exchange system, potentially leading to increased competition and more favorable pricing for customers engaged in international money transfers.

The decision reflects the CBN’s commitment to liberalizing the Nigerian foreign exchange market and encouraging a more flexible, market-oriented environment. The removal of the exchange rate cap is aimed at attracting more diaspora remittances into the country. By allowing IMTOs to quote exchange rates without restrictions, the CBN seeks to incentivize these operators to bring their foreign exchange supply into Nigeria, rather than keeping it abroad.

Previously, the exchange rate limits hindered diaspora Nigerians from selling forex at market rates when using IMTOs, leading to reduced forex liquidity in Nigeria. This policy change is a significant move towards a more open and market-driven foreign exchange regime in Nigeria, with the potential to enhance the overall health and efficiency of the country’s financial sector. The decision is expected to contribute to increased diaspora inflows, which could have positive implications for the country’s economy.

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