Foreign Exchange Market: A New Era of Transparency and Accountability -By Isah Aliyu Chiroma

The launch of the Nigeria Foreign Exchange Code (FX Code) marks a significant milestone in the country’s journey towards a more transparent and accountable foreign exchange market. This landmark initiative is a testament to the collective efforts of stakeholders to promote ethical conduct, fairness, and efficiency in the market.

The FX Code is built on six core principles: Ethics, Governance, Execution, Information Sharing, Risk Management and Compliance, and Confirmation and Settlement Processes. These principles align with international standards while addressing Nigeria’s unique challenges, providing a foundation for a resilient and transparent market that inspires confidence among domestic and international participants.

The importance of this initiative cannot be overstated. Nigeria’s foreign exchange market has faced numerous challenges in the past, including multiple exchange rates, unethical practices, and a lack of transparency. These issues have undermined market integrity, contributed to inflation, and eroded public confidence.

However, with the FX Code, Nigeria is signaling its commitment to a new era of transparency and accountability. The code is not just a set of recommendations; it is an enforceable framework that will be backed by penalties and administrative actions for non-compliance.

The impact of this initiative is already being felt. The introduction of the Electronic Foreign Exchange Matching System (EFEMS) in December 2024 has improved market transparency and efficiency, with the naira appreciating significantly since its launch. Additionally, Nigeria’s external reserves have grown by 12.74%, reaching US$40.68 billion at the end of 2024.

The success of the FX Code will depend on the collective efforts of all stakeholders. Market participants must recognize that adherence to the code’s principles is not merely about compliance but about restoring public trust in the financial system.

Leaders in the industry must lead by example, embedding the code’s standards within their organizations. The Central Bank of Nigeria (CBN) has already taken steps to ensure the code’s effectiveness, including the introduction of revised guidelines for the Nigerian Foreign Exchange Market (NFEM) in November 2024. 

The FX Code provides a comprehensive framework for the Nigerian foreign exchange market. Some of the key provisions include: Ethical and Professional Conduct; Market participants are expected to behave in an ethical and professional manner, promoting the integrity of the FX market. Market participants are expected to have effective governance structures in place, including clear lines of authority and responsibility.

Risk Management; Market participants are expected to establish robust risk management frameworks to manage and mitigate risks. Information Sharing, which will help market participants to maintain confidentiality and handle sensitive information with care.

-Market participants are expected to comply with all applicable laws and regulations, including anti-money laundering and combating the financing of terrorism (AML/CFT) regulations.

As Nigeria continues to navigate the complexities of the global economy, the FX Code will be a vital tool in shaping the country’s economic future. With its comprehensive framework and enforceable provisions, the FX Code is poised to restore public trust in the financial system and promote a more transparent and accountable foreign exchange market.

In addition to the FX Code, the Federal Government has also taken steps to improve the country’s infrastructure, including the approval of $45.3 million for an in-depth feasibility study and engineering design for a new transportation route alignment serving the four Western seaports.

The introduction of the Electronic Foreign Exchange Matching System (EFEMS) has also improved market transparency and efficiency, with the naira appreciating significantly since its launch.

Furthermore, the Federal Executive Council (FEC) has approved several key road projects across the country, including the reconstruction of the Lagos-Ibadan Expressway (Phase 2, Section 1) and the construction of the Kuje-Gwagwalada dual carriageway project.

These initiatives demonstrate the government’s commitment to promoting economic growth and development through infrastructure development and foreign exchange market reforms.

The launch of the Nigeria Foreign Exchange Code marks a significant milestone in the country’s journey towards a more transparent and accountable foreign exchange market. The code’s comprehensive framework and enforceable provisions are poised to restore public trust in the financial system and promote a more transparent and accountable foreign exchange market.

As Nigeria continues to navigate the complexities of the global economy, the FX Code will be a vital tool in shaping the country’s economic future. With the government’s commitment to promoting economic growth and development through infrastructure development and foreign exchange market reforms, Nigeria is well on its way to achieving a more transparent and accountable foreign exchange market.