How the FX Code Changed Market Behaviour in 2025

For years, Nigeria’s foreign exchange market struggled with more than just dollar shortages. It was weighed down by fragmented exchange rate windows, opaque pricing, speculative activity and inconsistent market practices that undermined investor confidence and distorted price discovery.

Successive policy interventions sought to stabilise the market, but confidence remained fragile as participants navigated multiple exchange rates and administrative controls.

In 2025, however, the Central Bank of Nigeria (CBN) shifted its strategy.

Rather than relying solely on interventions to influence the market, the apex bank introduced the Nigeria Foreign Exchange Code (FX Code) as part of a broader package of reforms aimed at changing how the market itself operates

Together with the Willing Buyer–Willing Seller framework, the Electronic Foreign Exchange Matching System (EFEMS), the launch of the Non-Resident Bank Verification Number (NRBVN), and new investment channels for Nigerians in the diaspora, the FX Code represented an effort to institutionalise transparency, accountability and market discipline.

The question now is whether those reforms merely changed the rules or whether they genuinely changed market behaviour.

From managing the market to governing it

Unlike previous reforms that focused primarily on exchange rate management, the FX Code addressed the conduct of market participants.

Launched in January 2025, the Code established six guiding principles covering ethics, governance, execution, information sharing, risk management, and confirmation and settlement. According to the CBN, these principles were designed to ensure fair pricing, strengthen integrity and improve oversight across foreign exchange transactions in line with international best practices.

The significance of the Code lies in its recognition that sustainable foreign exchange stability depends not only on liquidity but also on trust.

Markets function more efficiently when participants believe that prices reflect genuine supply and demand, information is shared fairly, transactions are properly documented, and regulatory standards are consistently enforced. The FX Code was therefore intended to reshape incentives and expectations across the market rather than simply dictate outcomes.

Behavioural changes beyond the policy document

The CBN’s 2025 Annual Report suggests that the reforms were accompanied by measurable changes in market activity.

Aggregate foreign exchange inflows rose to $109.86 billion in 2025 from $96.53 billion a year earlier, driven mainly by stronger autonomous inflows, which increased more than 25 per cent to $70.54 billion. Net FX inflows into the economy also improved to $60.81 billion, indicating stronger participation outside official CBN channels.

This shift matters because a larger share of foreign exchange entered the market through private sources rather than direct central bank intervention. In practical terms, it points to growing confidence among exporters, investors and other autonomous participants that the market had become more transparent and predictable.

The CBN also linked ongoing reforms—including the FX Code—to stronger investor confidence. Foreign capital inflows almost doubled, rising 93.71 per cent to $23.40 billion, supported by competitive domestic returns and renewed confidence in Nigeria’s foreign exchange framework.

Although portfolio investment accounted for the bulk of those inflows, the increase nevertheless suggested that investors were responding positively to improvements in market structure and governance.

Transparency replaced fragmentation

One of the most significant changes in 2025 was the consolidation of multiple exchange rate windows into a unified framework.

According to the CBN, harmonising the various windows simplified foreign exchange access, improved market clarity and reduced opportunities for arbitrage. The Bank also maintained the Willing Buyer–Willing Seller principle, requiring authorised dealers to quote and display exchange rates openly while allowing market forces to play a greater role in price discovery.

These measures reflected a broader shift away from administrative allocation toward a rules-based market in which transparency, rather than discretion, became the organising principle.

The implementation of EFEMS complemented these reforms by strengthening price discovery and improving transaction efficiency, while new products such as the NRBVN, Non-Resident Nigerian Ordinary Account (NRNOA) and Non-Resident Nigerian Investment Account (NRNIA) sought to broaden participation by Nigerians in the diaspora and other foreign investors.

Discipline requires enforcement

Regulatory reform is only effective when backed by credible enforcement.

The CBN reported that it conducted routine examinations of all 34 authorised dealers in the foreign exchange market—comprising 29 commercial banks and five merchant banks—between April and May 2025. The examinations assessed compliance with foreign exchange rules, reviewed utilisation of foreign exchange for eligible transactions and analysed transaction trends. The review identified infractions, for which appropriate penalties were recommended.

The enforcement exercise underscored an important feature of the FX Code: compliance was not intended to be voluntary. By combining clear standards with supervisory oversight, the CBN signalled that ethical conduct and market discipline would become integral components of foreign exchange operations.

Progress, but not the final destination

The improvements recorded in 2025 suggest that the reforms are beginning to reshape market behaviour, but they do not indicate that the transition is complete.

The rise in autonomous foreign exchange inflows, stronger capital imports, improved price discovery, higher external reserves and increased investor participation all point to a market becoming more rules-based and transparent. The naira also ended the year stronger than in 2024, while external reserves rose to $45.75 billion, providing additional evidence of improving market confidence.

At the same time, the composition of capital inflows shows that confidence remains largely driven by portfolio investors rather than long-term foreign direct investment. Sustaining the gains achieved in 2025 will therefore depend on consistent enforcement of the FX Code, continued policy credibility and the ability of reforms to attract more durable investment into the economy.

Ultimately, the Nigeria FX Code may prove significant not because it introduced another set of regulations, but because it sought to change the behaviour that underpins the foreign exchange market. If consistently implemented, its lasting legacy may be a market governed less by administrative intervention and more by transparency, accountability and confidence—qualities that are essential for attracting long-term capital and supporting macroeconomic stability.