April 18, 2024

CBN Initiates Dollar Sales to BDCs to Address Exchange Rate Distortions

 

By: Emmanuel Ibitoye

 

In a significant move, the Central Bank of Nigeria (CBN) has announced the commencement of the sale of foreign exchange, allocating $20,000 to each eligible Bureau De Change (BDC) operator nationwide. This decision comes after more than two years since the former CBN governor, Godwin Emefiele, suspended the sales of foreign exchange to BDC operators in that segment of the forex market.

 

The circular, titled “Sale of Foreign Exchange to Bureau de Change Operators to meet retail demand for eligible invisible transactions,” aims to rectify persistent distortions in the retail segment of Nigeria’s foreign exchange market and narrow the widening gap in the exchange rate.

 

According to the circular signed by Hassan Mahmud, the Director, Trade and Exchange Department, the allocation will be sold at a rate of N1,301/$, reflecting the lower band rate of executed spot transactions at the Nigerian Autonomous Foreign Exchange Market as of the previous trading day, dated February 27, 2024.

 

The circular states, “Following the ongoing reforms in the foreign exchange market, aimed at achieving an appropriate market-determined exchange rate for the Naira, the Central Bank of Nigeria has observed the continued price distortions at the retail end of the market, which is feeding into the parallel market and further widening the exchange rate premium.”

 

“To this end, the CBN has approved the sale of foreign exchange to eligible Bureau De Change to meet the demand for invisible transactions. The sum of $20,000 is to be sold to each BDC at the rate of N1,301/$ – (representing the lower band rate of executed spot transactions at NAFEM for the previous trading day, as of today, 27th February 2024).”

 

“All BDCs are allowed to sell to end-users at a margin NOT MORE THAN one per cent (1 per cent) above the purchase rate from CBN.”

 

The circular further directs eligible BDCs to make Naira payments to the designated CBN Foreign Currency Deposit Naira Accounts and submit confirmation of payment with other necessary documentation.

 

The CBN’s recent efforts to stabilize the Naira include probing and clearing FX backlog, limiting forex for foreign education and medical tourism, increasing BDCs’ minimum share capital, and curbing FX speculators.

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