CBN Electronic FX Platform: Double-Edged Sword for Naira, Fintech Operators
The move to automate Nigerian forex market has a potential to blocked lacuna that created huge FX spread on foreign currency payments using financial technology and payment platforms.
The Nigerian financial landscape has witnessed an influx of fintech firms offering payment services to individuals and smaller businesses blocked by the system, amidst exchange rate instability fueled by US dollar shortages.
Analysts told MarketForces Africa that the Central Bank of Nigeria’s (CBN) latest move to automate foreign exchange market transactions is a right step toward curbing excessive speculation.
Currency speculation ranked higher among key downside to exchange rate recovery. The Apex Bank recent outburst over huge foreign currency taken out through Binance suggests that Nigerians were betting against the local currency.
This was made possible due to aged long omission in the forex market governance across various platforms, including peer-to-peer cryptocurrency trading.
Many banks are yet to allow local businesses with small US dollar demand to use their debit cards for online payments and this has caused a rush to alternative platforms.
However, these platforms charge Nigerians higher exchange rates to obtain and spend US dollar for genuine invisible payments across online platforms.
The Apex Bank stopped US dollar transactions using banks debit cards as part of efforts to reduce excessive foreign currency demands, and international payments with little or no local options.
The CBN however, keeps mum when asked about its positions about Fintech platforms quoting exchange rates with huge FX spread per transactions.
“Exchange rates differ across four major lines: the CBN, the local bank, fintech platforms and the parallel market rates”, a Broadstreet analysts said in a chat with MarketForces Africa.
Analysts expressed view that the development will reduce crosswind facing the local currency with possibility of removing currency plays, depending on the robustness of the platform and FX supply.
Last week, the CBN announced the introduction of an Electronic Foreign Exchange Matching System (EFEMS) to enhance governance and transparency and enable a market-driven exchange rate.
EFEMS will be implemented by December 1, 2024, with a 2-week test run in November for all interbank FX transactions, according to apex bank.
The CBN stated that the new system would “facilitate a market-driven exchange rate accessible to the public”.
“This development is expected to reduce currency speculation, eliminate market distortions and give the CBN improved oversight,” the bank said in a circular dated Oct. 2.
The authority said a two-week test run would be carried out in November, without specifying the exact dates. With the new system, the CBN said it would publish real-time prices and buy/sell orders data. #CBN Electronic FX Platform: Double-Edged Sword for Naira, Fintech Operators
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