The Nigerian naira has continued its alarming descent against the US dollar, plummeting to a new low of 980 naira to the dollar at the parallel market on Thursday. This steep decline comes only a week after the naira was trading at a relatively stronger rate of 950 naira to the dollar. Bureau de Change (BDC) operators are pointing to a severe shortage of foreign currency as the primary driver behind this depreciation.
Mr. Akin Omodele, a BDC Operator, offered insights into the ongoing crisis, saying, “The surge in FX rates can be attributed to the absence of sellers in the market. The demand for the dollar is soaring, while its supply remains dismally low. Additionally, Nigeria’s external reserves are depleting as they are being used to support international organizations and other countries. Rather than building up our reserves, we are depleting them.” He further expanded on the situation, specifically addressing the Dangote refinery in the context of foreign exchange. Omodele emphasized that the refinery, instead of importing fuel, should establish refineries in each geopolitical zone of the federation, with a mega refinery dedicated solely to exports. This strategy, he believes, would facilitate more efficient fuel production and distribution, especially given that each geopolitical zone has crude oil-producing states and also increase the country’s external reserve.
Idris Musa, another BDC operator, expressed his apprehension about the current situation: “Today, we had to buy and sell the naira at rates of 965/$ and 980/$, and even then, the dollar was scarcely available.” Yusuf Kareem, echoing Musa’s concerns, added, “The dollar was being sold at 980 today, but we are uncertain whether this trend will persist or if there might be a reversal.”
Nevertheless, there was a faint glimmer of hope in the forex market as the naira experienced a slight uptick on the FMDQ at the Investor & Exporter forex window. It closed at 770.71 naira to the dollar on Wednesday, a marginal improvement from 776.76 naira on Tuesday.
The Association of Bureaux De Change Operators of Nigeria (ABCON) has recently made a plea to the Central Bank of Nigeria (CBN) for greater digital autonomy, which they believe will contribute to achieving exchange rate stability. In a formal statement, Dr. Aminu Gwadabe, President of ABCON, urged the CBN to grant a no-objection approval for BDCs to fully transition to digital operations.
Gwadabe emphasized that BDCs source foreign currencies from various channels, including private sources and the CBN window, based on specific needs such as Business Travel Allowance, Personal Travel Allowance, School Fees Payments abroad, Medical expenses, mortgage, personal home remittances, and subscriptions.
He also underscored ABCON’s commitment to compliance, noting that compliance officers have been rigorously trained to ensure strict adherence to regulatory standards, particularly concerning monthly reporting and the monitoring of illicit capital flows. Gwadabe stressed that BDCs are actively complying with the reporting of suspicious transactions, as directed by the Nigerian Financial Intelligence Unit (NFIU), CBN, and the Economic and Financial Crimes Commission (EFCC).
The continuous depreciation of the naira against the US dollar is causing growing unease among market participants and the general public. While BDC operators attribute this decline to a scarcity of foreign currency, industry stakeholders, like ABCON, are advocating for digital autonomy to enhance transparency and efficiency in the foreign exchange market. The response of the central bank to these appeals will play a pivotal role in determining the trajectory of the naira’s value in the weeks ahead.