In a fresh move to address forex liquidity challenges and meet growing demand, the Central Bank of Nigeria (CBN) has approved the sale of $20,000 to each qualified Bureau De Change (BDC) operator at a rate of N1,580 per dollar.
The apex bank announced this in a statement signed by Dr. W.J Kanya, Director of the Trade & Exchange department, detailing the conditions and the expected outcome of the move.
According to the CBN, this initiative is aimed at facilitating “invisible transactions,” a term that refers to payments for services like school fees, medical bills, and personal travel allowances (PTA), which have been under intense pressure due to high demand and dwindling foreign exchange reserves.
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To ensure proper compliance and pricing, the CBN mandated that BDCs sell to eligible end-users at a margin not exceeding 1% above the purchase rate of N1,580 per dollar.
The statement reads: “The CBN has approved the allocation of $20,000.00 to each qualified Bureau de Change at an exchange rate of N1,580 per dollar. This measure aims to address the demand for invisible transactions.”
It also clarified that interested BDC operators must deposit funds into CBN accounts to facilitate the purchase of forex.
Mixed Sentiments in the Market
Despite this liquidity injection, the Naira’s performance remains mixed. While the official market showed signs of recovery, the black market continued to depreciate. According to data from FMDQ, the official foreign exchange market saw the Naira appreciate significantly to close at N1,593.32 per dollar on Friday, an improvement from the N1,625.88 rate recorded on Thursday. This represents a notable gain of N32.56 against the dollar in a single trading day.
This upward trend in the official market reflects increased liquidity, suggesting a positive market response to the central bank’s intervention efforts. Additionally, the Naira posted a week-on-week gain of N5.24 compared to last Friday’s exchange rate of N1,598.56 per dollar at the official market, signaling improved sentiment in the formal sector.
However, the Naira’s trajectory in the black market tells a different story. The parallel market, often seen as a barometer of real demand pressures, saw the Naira weaken further to close at N1,665 per dollar on Friday, slipping from N1,660 the day before. This decline highlights the continued struggle for forex liquidity in the informal sector, where higher demand for dollars is significantly suppressing CBN interventions.
The black market saw a week-on-week decline of N20 per dollar. Last week, the Naira traded at N1,645 per dollar, highlighting the growing disparity between the official and parallel markets.
For many Nigerians, especially those reliant on foreign transactions, the black market remains a critical source of forex, given the limited availability of dollars through official channels. Hence, the continued depreciation of the Naira in the parallel market is expected to keep inflationary pressures elevated in the short term.
A Fragile Recovery
The recent appreciation of the Naira in the official market, though encouraging, remains fragile. Analysts warn that the gains may be short-lived unless more sustained measures are put in place to bridge the wide gap between the official and parallel exchange rates. They note that the persistent scarcity of foreign exchange and the volatility of the parallel market indicate that demand pressures remain strong, despite the CBN’s latest interventions.
The forex market in Nigeria has been under immense strain in recent years, compounded by declining oil revenues amid a surge in demand for dollars.
While the CBN’s approval of forex sales to BDCs is seen as a stopgap measure to alleviate immediate pressures, the overarching concern remains whether this move will be enough to bring lasting stability to the market. The reintroduction of BDC allocations marks a shift in CBN’s forex management strategy, given the earlier stance that limited the role of BDCs in favor of formal banking channels.