In response to the persistent imbalances observed in Nigeria’s foreign exchange market, the Central Bank of Nigeria (CBN) has initiated proactive steps to bridge the widening gap in exchange rates by supplying Bureau De Change (BDC) operators with dollars daily.
In a recent circular signed by Dr. Hassan Mahmud, the Director of the Trade & Exchange Department, the CBN announced its decision to allocate $20,000 to eligible Bureau De Change (BDC) operators across the nation.
The move is part of a comprehensive strategy aimed at achieving a more market-driven exchange rate for the Naira while mitigating pressures on the parallel market.
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Under the directive, the allocated funds will be sold to BDCs at a fixed rate of N1,301/$, mirroring the lower band rate of executed spot transactions at the Nigerian Autonomous Foreign Exchange Market (NAFEM) as of the previous trading day, dated February 27, 2024. This strategic intervention is anticipated to infuse much-needed liquidity into the market, thus stabilizing the Naira’s value.
Additionally, the circular delineates specific guidelines for BDC operators, limiting their margin on foreign exchange sales to end-users to not more than one percent (1%) above the purchase rate from the CBN. This measure aims to curb excessive mark-ups and safeguard consumers from price exploitation.
“The CBN has approved the sale of foreign exchange to eligible BDCs to meet the demand for invisible transactions. The sum of $20,000 is to be sold to each BDC at the rate of N1,301/$—(representing the lower band rate of executed spot transactions at NAFEM for the previous trading day, as at today, 27th February 2024),” the circular highlights. “All BDCs are allowed to sell to end-users at a margin NOT MORE THAN one percent (1%) above the purchase rate from CBN.”
Furthermore, eligible BDCs are required to deposit their Naira payments into designated CBN Foreign Currency Deposit Naira Accounts and furnish confirmation of payment along with other requisite documentation for disbursement at select CBN branches in Abuja, Awka, Lagos, and Kano.
This strategic move by the CBN is aimed at enhancing the efficiency and transparency of the foreign exchange market, fostering a conducive environment for Naira trading. By directly addressing distortions in the retail market, the CBN seeks to promote economic stability and growth.
In addition to these measures, the CBN has implemented various reforms to counter Naira depreciation, including the resolution of FX backlogs, restrictions on forex for foreign education and medical tourism, augmentation of BDCs’ minimum share capital, and measures to deter FX speculation. The central bank said on Tuesday it has cleared an additional $400 million in the nation’s FX obligations, leaving outstanding of about $4 billion.
However, the efforts have failed to tackle the prevailing foreign exchange challenges, which have contributed significantly to the mounting inflation rates in the country. With the nation’s headline inflation at 29.90%, the CBN increased the interest rate once again, to 22.75%, following the Monetary Policy Committee meeting which was concluded on Tuesday.
Consequently, this fresh move by the CBN to supply BDCs with dollars has come with skepticism due to insufficient liquidity of forex. Though the CBN governor Yemi Cardoso said on Tuesday that the Nigerian foreign reserve, from where it is expected to sustain the supply of FX to the BDCs and banks, has risen to $34 billion, there is concern that the recent increase in the fund will not be sustained. This is because of the continuous decline in the nation’s oil output, attributed to oil theft and vandalism of oil installations.
The naira closed at N1,615.94 per dollar in the official (NAFEM) market and N1,630 in the parallel market on Tuesday.