BANKING 1.4 REGULATION OF FOREIGN EXCHANGE
Currency, being a manifestation of a state’s sovereignty differs from one state to another. Foreign exchange entails conversion of one currency to another based on the current value (exchange rate). In simple terms; foreign exchange entails the buying and selling of currencies.
HOW DID FOREIGN EXCHANGE COME ABOUT IN NIGERIA?
Foreign exchange was necessitated in Nigeria by the following:
- Colonial rule and contact with the West.
- Expansion of trade and commerce between Nigerians and foreigners.
- The establishment of the CBN in 1958 to issue and distribute the Naira.
- Exportation of agricultural and petroleum produce. Payment was (and still is) made in foreign currency.
The Nigerian Stock exchange was founded in 1960.
By Section 1(2) and 8 of the Foreign Exchange (monitoring and Miscellaneous Provisions) Act 1995, the CBN issues guidelines, monitors and supervises the operations of the market. The Security and Exchange Commission is the regulatory body.
HOW HAS FOREX BEEN REGULATED IN NIGERIA?
The following Enactments have regulated the Foreign Exchange Market in Nigeria:
- :: The Exchange Control Act, 1962: which aimed to protect and conserve financial resources.
- :: The Foreign Currency Domiciliary Decree 1985: which facilitated the liberalisation of the foreign exchange market.
- :: The Second-Tier Foreign Exchange Market Decree (now Act) 1986 (SFEM). Established to meet with increased demand for foreign exchange following the increased exportation of petroleum. Some salient features of this decree include:
- The exchange rate allocation was to be based on market forces.
- The Bureau De Change was introduced in 1989 to broaden the market and accommodate privately sourced foreign exchange.
Following the volatility in the rates and the need to regulate the market, further reforms were carried out in 1994. For example; Foreign exchange was centralised in the CBN, the Bureau De Change was regarded as the CBN’s agent in buying foreign currency. It was reiterated that the black market was illegal.
- :: Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 1995: this is the current one. The salient features of this Act include:
- It further liberalised the Foreign Exchange market.
- Section 1 established the (AFEM) Autonomous Foreign Exchange Market which enabled authorised dealers to sell to end-users in accordance with the provisions of the Act.
- Introduction of the Inter-bank Foreign Exchange Market (IFEM) in 1999 which enabled authorised dealers, sellers and the public to transact. (See Section 7 FE(MMP)A).
- Bureau de Change were reaffirmed as authorised dealers in the interpretation Section 41.
- Section 3 protected those that dealt in foreign currency by providing that a dealer shall not be compelled to disclose the source of his foreign currency.
- Section 4, listed certain authorized sources of forex in Nigeria viz: currency imported into Nigeria by: returning citizens, foreign nationals resident in Nigeria, non-oil export proceeds, those imported by foreigners for transaction, those provided by the CBN amongst others.
- The Act provided that the CBN may appoint authorised dealers and revoke such appointment in national interest where necessary.
- Section 9 provides that the rate for each transaction shall be that which the purchaser and the authorised dealer agree upon. This sought to promote freedom of bargaining power.
- Section 11 mandates that all dealings must be within the stipulations of the act… the market should not deal in prohibited goods.
- Section 29 and 30 provides for offences and penalties-Onwuchekwa V NDIC. They include: Wilful and fraudulent forgery, mutilation, defacing foreign currency, cheques, other exchange instruments (the punishment provided for the above is 5years or 5 times the foreign currency involved and licence can be revoked.
In conclusion, the forex environment in Nigeria has undergone various regimes of sophisticated regulation in Nigeria.
 Although it was known as the Lagos Stock Exchange. It was not until 1977 that it became known as the Nigerian Stock Exchange.
 Place for converting currency.