In a fresh bid to boost the Nigerian naira’s performance in the foreign exchange (FX) market, the Central Bank of Nigeria (CBN) has issued a circular to Bureau De Change operators (BDCs), announcing the sale of $10,000 to each BDC at a rate of N1,101/$1.
This move has further propelled the naira’s strength in the market, marking a significant performance in the country’s currency dynamics.
According to the circular, BDCs are mandated to sell the allocated dollars to eligible customers at a rate not exceeding 1.5% above the purchase price. This implies that BDCs are expected to sell dollars at a rate below N1,117/$1. However, this selling rate contrasts starkly with the N1,251.05/$1 recorded at the close of the previous week, as per data from the Nigerian Autonomous Foreign Exchange Market (NAFEM).
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The circular stated, “We write to inform you of the sale of $10,000 by the Central Bank of Nigeria (CBN) to BDCs at the rate of N1101/$1. The BDCs are in turn to sell to eligible end users at a spread of NOT MORE THAN 1.5 percent above the purchase price.”
With a list of 1588 eligible BDCs provided by the CBN in the circular, the potential cost to the apex bank for this allocation could reach approximately $15.88 million if all eligible BDCs purchase their dollar allocations.
As a direct outcome of this initiative, the naira has demonstrated sustained appreciation across both the official and unofficial FX markets, surging to 1,200 on the black market. This current rate signifies a notable 3.33% appreciation compared to the N1,240 per dollar exchange rate observed on the previous Friday in the parallel market.
The continuous strengthening of the naira reflects a remarkable gain of 52.08% (N625) against the dollar on the black market, as per rates compiled by various street traders and trading platforms.
This marks the third attempt by the CBN to sell FX to BDCs following a prolonged suspension in 2021. The ban was lifted earlier this year, after the revocation of licenses of over 4173 BDC operators in February.
The Association of Bureau De Change Operators of Nigeria (ABCON) has recently appealed to the CBN to adjust the applicable exchange rate downwards, citing concerns over the current rate of N1,251/$ being expensive. This appeal comes amidst a historic development where, for the first time in 15 years, the parallel market rate of N1,235/$ is lower than the official rate of N1,252/$, which is the buying exchange rate set for BDCs.
The resumption of forex sales to BDCs signals the apex bank’s renewed focus on enhancing liquidity in the retail segment of the forex market. Previously, the prohibition of forex sales to operators was largely due to concerns regarding price arbitrage during the tenure of former CBN governor Godwin Emefiele, when the exchange rate was fixed.
However, with the shift to a “market-determined” exchange rate regime, the CBN believes that operators no longer have the incentive to engage in arbitrage by purchasing at lower rates from the CBN and selling at higher rates in the parallel market.
By enhancing liquidity, the CBN aims to stabilize the forex market, narrow the gap between official and parallel market rates, and ultimately reduce exchange rate volatility. This strategy is expected to improve access to forex for retail and small-scale enterprises, fostering a more transparent and efficient market.
However, sustaining this approach may come at a cost, as the foreign exchange reserve recently experienced a decline of about $1.02 billion within 18 days. Despite potential short-term costs, the impact of improved liquidity is projected to contribute to a stronger naira in the immediate future.