A senior official from the Association of Bureau De Change Operators of Nigeria (ABCON) has pointed to insufficient dollar allocations from the Central Bank of Nigeria (CBN) as the primary cause of the recent depreciation of the naira. The naira recently hit a new low of N1,520.4 against the dollar, marking the weakest point since March 20. Market volatility is evident, with a 41% drop in daily turnover indicating tighter liquidity conditions.
Contrary to some reports blaming Bureau De Change (BDC) operators for the naira’s depreciation, the ABCON official, who wished to remain anonymous, asserted that the root issue lies with the reduced dollar supply from the CBN. “The CBN last provided dollars to only about 30% of licensed operators,” the official explained, emphasizing the significant challenge this poses for the rest.
With limited dollar allocations from the CBN, BDC operators are forced to source dollars at higher rates from the parallel market, subsequently impacting the rates they offer to customers. The official noted, “Most of our members who bid for dollars about four weeks ago are only just receiving their allocations.” Over the past three months, only about $40 million has been allocated to BDCs, far from meeting the demand.
Addressing allegations that BDC operators are manipulating the market by buying dollars at lower official rates and selling them at inflated prices, the official refuted these claims. “Less than a third of BDCs have received their dollar allocations from the CBN, and those who did, received them sporadically and insufficiently,” he said. He criticized the slow and inadequate distribution of dollar supplies, describing the pace of allocations as “snail-speed.”
The official also called out the government for overlooking fundamental economic issues. “We often ignore fundamental economic issues in this country and chase after less relevant matters. Such strategies inevitably lead to errors,” he stated.
Highlighting broader economic challenges, the official emphasized the need for better management of the Autonomous Foreign Exchange Market (AFEM) window. “The AFEM window isn’t being adequately utilized. Why isn’t more attention given to what’s happening there, or do they think BDCs operate in isolation from the rest of the economy?” he questioned.
On the issue of high selling rates, the official explained that limited dollar allocations force BDCs to source additional dollars independently. “Imagine receiving just $10,000 over four weeks. It’s impossible for that amount to remain intact given the demand,” he said, noting that supply constraints and broader economic indicators, not just BDC activities, drive market dynamics.
The official also discussed the impact of inflation on the currency value, noting that many Nigerians are holding onto their dollars as a hedge against inflation. “Last year’s N10,000 is barely worth N3,000 to N4,000 today,” he remarked.
The recent downturn in the naira’s value reflects broader issues within the Nigerian economy, particularly concerning forex liquidity. Over the past week, the naira has lost about 11% of its value on the official market, underscoring the significant challenges Nigeria faces in stabilizing its currency.
The forex market’s volatility was evident on Tuesday, with the naira hitting an intra-day high of N1,568/$1 before dipping to a low of N1,350/$1. This fluctuation suggests a volatile trading session influenced by initial sell-offs and subsequent buy-backs or corrective movements.
Further complicating the situation is the sharp 41% drop in daily turnover on the same day, with market activity plummeting to $128.76 million from $217.64 million recorded the previous day. This dramatic fall highlights the unpredictable nature of dollar supply in the official market.
Despite these turbulent conditions, Nigeria’s foreign exchange reserves have shown some resilience, having increased by $262 million since April 19, 2024. This improvement began around the time the Governor of the Central Bank of Nigeria, Yemi Cardoso, stated that the apex bank would not actively defend the naira despite a prolonged dip in the country’s reserves. This strategic reserve accumulation could provide some support for the naira if managed effectively.
