In a bid to stabilize the Nigerian foreign exchange market and meet the rising demand for foreign currencies, the Central Bank of Nigeria (CBN) has approved the sale of an additional $20,000 to eligible Bureau de Change (BDC) operators at a rate of N1,590 per US dollar. This new directive, aimed at increasing liquidity in the retail segment, comes as part of the central bank’s continued efforts to manage the pressure on Nigeria’s foreign exchange reserves.
This announcement, made via a circular on September 25, 2024, and signed by Dr. W.J. Kanya, Acting Director of the CBN’s Trade & Exchange Department, highlights key adjustments in the exchange framework. The new selling rate of N1,590 is N10 higher than the previous rate set earlier in the month, indicating the CBN’s cautious approach to managing the naira’s exchange rate amidst market fluctuations.
Profit Margin Restrictions to Ensure Fair Trading
To maintain market stability and prevent overpricing in the retail market, the CBN has placed strict limits on the profit margins BDC operators can apply. The circular instructs that operators can only sell to end-users with a margin of no more than 1% above the CBN purchase rate. This measure is designed to curb excessive profiteering by BDCs and ensure that foreign exchange reaches consumers at fair rates.
The restrictions are also intended to foster transparency and promote a more stable exchange rate environment, benefiting individuals and businesses involved in foreign exchange transactions for non-physical goods or services. These transactions, often referred to as “invisible transactions,” typically include payments for education, healthcare, personal travel allowances (PTA), and other service-based needs abroad.
How the BDCs Will Access the Funds
Eligible BDC operators interested in this transaction must make naira payments to their designated CBN deposit accounts. Once the payments are confirmed, the operators are required to submit necessary documentation to CBN branches in Abuja, Awka, Kano, and Lagos for disbursement of the $20,000. By implementing this structured approach, the CBN ensures a clear and regulated process for accessing and distributing foreign exchange in the market.
A Strategic Response to Market Demand
The CBN’s decision to inject additional liquidity into the foreign exchange market is seen as a strategic move to meet the increasing demand for dollars, particularly for personal and business transactions. The demand for invisible transactions, such as school fees, medical expenses, and international travel, has been rising steadily, leading to increased pressure on the availability of foreign exchange in the country.
This marks the second sale of foreign exchange to BDC operators by the CBN in September and the seventh sale this year, demonstrating the central bank’s commitment to addressing the liquidity challenges faced by the forex market. With a total of 1,583 registered BDC operators in the country, the latest sale could cost the CBN approximately $31.66 million, and with two sales in the month, the total expenditure is projected to reach $63.32 million.
Impact on Nigeria’s Foreign Exchange Market
This move by the CBN is expected to alleviate some of the pressure on the naira by increasing access to dollars in the market. However, the upward adjustment in the exchange rate for BDCs—from N1,580 to N1,590—signals that the central bank is carefully monitoring the market and balancing the need for liquidity with efforts to maintain the stability of the naira.
With Nigeria’s foreign exchange market under strain from various economic factors, including high inflation, declining oil revenues, and the volatility of the global economy, the CBN’s proactive interventions aim to create a more stable environment. The additional liquidity provided by this sale will likely help ease some of the market pressures, though challenges remain in managing the long-term stability of the naira.
Looking Ahead**
As Nigeria continues to face economic headwinds, the CBN’s policies around forex management will remain critical in stabilizing the currency and ensuring the availability of foreign exchange for key sectors. The restrictions on profit margins and the structured distribution of forex are likely to keep speculation in check while providing much-needed liquidity to consumers and businesses.
For now, the central bank’s decision to intervene in the market with these measures is seen as a positive step toward addressing the country’s foreign exchange challenges. However, how effective these interventions will be in the long run depends on the overall health of the economy and global market conditions, which continue to impact Nigeria’s forex landscape.
