Structure of Nigeria's Foreign Exchange Market

FX Structure | FX Mgt Before Now. | FX Mkt | Debt Conversion | Exchange Rate Policy | Movement in Reserves | International Payments | Reserve Management

The Nigerian foreign exchange market has witnessed tremendous changes. The Second-tier Foreign Exchange Market (SFEM) was introduced in September 1986, while the unified official market was introduced in 1987, and the autonomous Foreign Exchange Market (AFEM) was introduced in 1995. In 1999, Interbank Foreign Exchange Market (IFEM).. The Retail Dutch Auction System (RDAS), Wholesale Dutch Auction System (WDAS), and Interbank Rate System were adopted between 2002 and 2015. The managed floating exchange rate regime was introduced in June 2016 and the free buyer, free seller model was introduced in 2023

Bureaux de Change was licensed in 1989 to allow access to small users of foreign exchange and to deepen the officially recognized foreign exchange market. Exchange rates in the Bureaux de Change are market-driven. The foreign exchange parallel market has been in existence since the exchange control era.

Structure of Nigeria's Foreign Exchange Market from 2002 to 2015

The Retail Dutch Auction System (RDAS), Wholesale Dutch Auction System (WDAS), and Interbank Rate System Regimes were adopted within this period. The Retail Dutch Auction System (RDAS) conducted auctions twice a week and bids were customer-based. In the Wholesale Dutch Auction System (WDAS), auctions were conducted twice a week and banks bought on their accounts to be sold to their customers. There was transferability of funds among banks, unlike RDAS where this was not permissible. The Bank, in 2015 adopted the Interbank Rate System Regime where all items were traded on the interbank market. The Bank intervened as the need arose and it was done directly to the customers.

Structure of Nigeria's Foreign Exchange From 2016 to 2022

To enhance efficiency and facilitate liquidity and transparency in the foreign exchange market, thereby attracting more foreign investments into the system, the Bank introduced Investors' and Exporters' Foreign Exchange window to further increase transparency and sustain gains made by the floating of the Naira. Thus, ensuring timely execution and settlement of eligible transactions, introduction of the Naira-settled OTC FX futures in collaboration with Financial Markets Dealers Quotation OTC Plc (FMDQ), introduced the Naira-Settled OTC Foreign Exchange Futures (OTC FX Futures) in June 2016. The product was aimed at enhancing market liquidity.

Structure of Nigeria's Foreign Exchange Market from 2023 to Date

The Central Bank of Nigeria periodically conducts foreign exchange spot sales to Authorised Dealers (Banks) in the Nigerian Foreign Exchange Market (NFEM). The FX spot sales are done using a two-way quote system on the Refinitiv platform to increase transparency in foreign exchange dealings. In addition, the Bank sells US$10,000 weekly to Bureaux De Change operators therefore improving liquidity in the foreign exchange market.