Beyond the naira rally: Why CBN’s FX manual matters for the economy

The appreciation of the naira and the steady rise in Nigeria’s external reserves since the launch of the fourth edition of the Foreign Exchange Manual by the Central Bank of Nigeria (CBN) have attracted considerable attention across financial markets.

Within days of the June 1 implementation of the revised framework, the local currency strengthened across key foreign exchange market segments, while external reserves climbed to a record $50.04 billion, reinforcing confidence in the country’s foreign exchange management system.

At the official market, data published by the CBN showed that the naira appreciated by N5.74, closing at N1,361.05 to the dollar compared to N1,366.79 recorded earlier in the week. In the parallel market, the currency remained relatively stable at N1,385 per dollar.

While the movement of the exchange rate has generated positive headlines, policymakers, bankers, investors and businesses see the significance of the new Foreign Exchange Manual as extending far beyond short-term currency gains.

The revised framework represents a major attempt to reshape the architecture of Nigeria’s foreign exchange market, strengthen transparency, improve liquidity, support investor confidence and create a more predictable environment for economic activity.

For many stakeholders, the importance of the new manual lies not in the immediate appreciation of the naira but in its potential to provide a durable foundation for a more efficient and credible foreign exchange system.

For decades, the foreign exchange market has remained one of the most sensitive segments of Nigeria’s economy.

The value of the naira influences virtually every aspect of economic life. Exchange rate movements affect food prices, transportation costs, school fees, medicine imports, fuel prices, manufacturing expenses and household purchasing power.

Businesses depend on access to foreign exchange to import machinery, raw materials and critical inputs required for production. Investors monitor exchange rate stability closely before committing capital, while government agencies rely on a functioning foreign exchange market to support trade and economic planning.

Although foreign exchange policy often appears technical, its impact is directly felt by households through inflation, employment opportunities and living standards.

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This explains why the launch of the fourth edition of the Foreign Exchange Manual has generated widespread interest across the financial sector, business community and broader economy.

The revised framework arrives after years of significant challenges within the foreign exchange market.

Nigeria has struggled with persistent pressure on the naira, inadequate liquidity, exchange rate distortions, speculative activities and declining investor confidence.

These challenges created uncertainty for businesses and contributed to inflationary pressures throughout the economy.

Manufacturers frequently complained about difficulties accessing foreign exchange needed to import raw materials and equipment. Airlines faced challenges repatriating earnings, while foreign investors often delayed investment decisions due to concerns about their ability to exit the market when necessary.

The existence of large gaps between official and parallel market exchange rates at different periods further undermined confidence and encouraged speculative behaviour.

Against this backdrop, the revised Foreign Exchange Manual represents more than a routine regulatory update. It is part of a broader effort by the Central Bank to rebuild confidence in the market and create a more transparent, rules-based and market-oriented system.

Under the new guidelines, authorised dealers are permitted to engage in spot foreign exchange transactions among themselves, with customers and with the CBN in any acceptable foreign currency for delivery within a maximum of two business days.

The framework requires all interbank spot transactions to be executed through an electronic trading system approved by the Central Bank.

Authorised dealer banks are also required to maintain adequate credit, settlement and risk limits for counterparties participating on approved trading platforms. The manual further directs banks to comply strictly with Net Open Position limits and ensure that breaches do not occur at the close of trading sessions.

In addition, Authorised dealer banks are permitted to conduct spot foreign exchange transactions with non-resident customers in acceptable foreign currencies, provided settlement requirements are met.

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The objective is to deepen market transparency, improve price discovery, strengthen liquidity and reduce inefficiencies that have historically affected the market.

At the launch of the revised framework, Olayemi Cardoso, governor of the CBN explained that the initiative forms part of broader efforts to strengthen the country’s macroeconomic foundation, improve transparency and restore confidence in the foreign exchange market.

His remarks underscored the central role of foreign exchange management in economic stability.

According to Cardoso, foreign exchange serves as a critical enabler in an open economy because it supports price stability, facilitates the movement of goods and capital and influences investor sentiment.

His position reflects a broader policy vision that views exchange rate stability not merely as a monetary objective but as a key component of sustainable economic development.

Further insight into the strategic direction behind the reforms was provided by Mohammed Sani Abdullahi, deputy governor for Economic Policy.

He noted that the review process was initiated from the beginning of the current administration as part of efforts to restore confidence, improve transparency, deepen liquidity and strengthen the market.

According to Abdullahi, the Central Bank recognised the need for a framework that reflects current realities, aligns with international standards, reduces inefficiencies and supports a more transparent and market-oriented system.

Such a framework, he explained, promotes clearer price discovery by allowing exchange rates to respond more effectively to demand and supply conditions.

The significance of the reforms extends beyond monetary policy and into the broader economic agenda of the federal government.

Representing the Minister of Finance and Coordinating Minister of the Economy at the launch, Mohammed Sanusi Danjuma, permanent secretary for Special Duties, described the revised manual as a major step towards strengthening Nigeria’s foreign exchange management system.

His comments highlighted the close connection between foreign exchange reform and wider economic transformation efforts.

According to Danjuma, the launch comes at a strategic period as the country continues implementing major fiscal and non-fiscal reforms, including fuel subsidy removal, tax reforms and exchange rate liberalisation.

These measures were introduced to address long-standing distortions within the economy, although they initially contributed to inflationary pressures and higher living costs.

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The finance ministry’s endorsement of the revised framework therefore signals continued alignment between fiscal and monetary authorities in pursuing economic reforms.

For market participants, one of the most important aspects of the new manual is its emphasis on policy consistency and predictability.

Investors generally prefer environments where rules are clear, transparent and stable.

The introduction of a comprehensive framework governing market operations can help reduce uncertainty and strengthen confidence among both domestic and foreign investors.

The reaction of the banking industry has also been largely positive.

Oliver Alawuba, chairman of the Body of Banks’ Chief Executives and Group managing director of United Bank for Africa, described the revised manual as part of a broader policy direction built around transparency, ethical conduct, stronger documentation and improved oversight.

He linked the initiative to other reforms such as the Electronic Foreign Exchange Matching System (EFEMS) and the Nigerian Foreign Exchange Code, both of which seek to modernise market governance.

Alawuba offered a striking illustration of how market conditions have evolved.

According to him, whereas customers previously approached banks seeking scarce foreign exchange, the situation has shifted significantly, with banks increasingly asking customers whether they have foreign exchange available for sale.

The observation reflects what industry leaders see as improved liquidity and stronger confidence in formal market channels.

The strengthening of market confidence is also being reflected in capital flows into the country.

Data released by the National Bureau of Statistics (NBS) showed that Nigeria recorded capital importation of $10.37 billion in the first quarter of 2026, representing an increase of 83.8 per cent compared with $5.64 billion recorded during the corresponding period of 2025.

The figure also represented a 61 per cent increase from the $6.44 billion recorded in the fourth quarter of 2025.

Portfolio investment accounted for the largest share of inflows, reaching $9.86 billion and representing 95.1 per cent of total capital imported during the quarter.

Money market instruments attracted $6.50 billion, while investments in bonds stood at $3.23 billion.

The banking sector emerged as the largest recipient of foreign capital, attracting $7.55 billion, while the financing sector received $2.43 billion.

Together, the two sectors accounted for more than 96 per cent of total inflows during the period.

Although Foreign Direct Investment remained relatively modest at $135.08 million, the broader increase in capital importation signals improving investor appetite for Nigerian financial assets.

For policymakers, these developments provide encouraging evidence that ongoing reforms are helping to rebuild confidence in the economy.

The rise in external reserves to a record $50.04 billion further strengthens this narrative.

Higher reserves enhance the country’s ability to meet external obligations, support market stability and provide an additional buffer against external shocks.

They also strengthen the Central Bank’s capacity to manage periods of market volatility without resorting to disruptive interventions.

Ultimately, the significance of the new Foreign Exchange Manual lies in its potential to support a more transparent, liquid and efficient market that serves businesses, investors and households alike.

While the recent appreciation of the naira has attracted immediate attention, the deeper objective of the reforms is to create a foreign exchange system capable of supporting sustainable economic growth.

For manufacturers, improved access to foreign exchange can support production and investment decisions. For investors, greater transparency and predictability can strengthen confidence and encourage capital inflows. For households, a more stable foreign exchange environment can help moderate inflationary pressures over time.

The true measure of success will therefore not be defined solely by short-term movements in the exchange rate, but by whether the reforms succeed in building a foreign exchange market that supports economic stability, attracts investment and strengthens confidence in Nigeria’s long-term economic prospects.

As the implementation of the revised framework gathers momentum, the early signs from the naira, external reserves and capital inflows suggest that the market is responding positively. The challenge now is to sustain those gains and translate improved confidence into broader economic benefits that reach businesses, investors and ordinary Nigerians.