In a move aimed at rectifying the persisting distortions in the retail segment of Nigeria’s foreign exchange market, the Central Bank of Nigeria (CBN) has taken a decisive step to bridge the widening gap in the exchange rate.
Through a new circular by Dr Hassan Mahmud, the Director of Trade & Exchange Department, the CBN has announced its decision to distribute $20,000 to each eligible Bureau De Change (BDC) operator across the country.
This initiative is part of the broader efforts to achieve a market-driven exchange rate for the Naira and alleviate the pressures feeding into the parallel market.
CBN offers N1,301/$
This 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 (NAFEM) as of the previous trading day, dated February 27, 2024. This strategy is anticipated to inject much-needed liquidity into the market and stabilise the Naira’s value.
CBN fixes selling rate limit
Also, the circular outlines specific guidelines for the BDC operators, stipulating that all BDCs are permitted to sell foreign exchange to end-users at a margin not exceeding one percent (1%) above their purchase rate from the CBN. This measure is intended to prevent excessive mark-ups and protect consumers from price exploitation.
The circular reads:
- “The CBN has approved the sale of foreign exchange to eligible Bureau De Change (BDCs) 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 at today, 27th February 2024).
- “All BDCs are allowed to sell to end-users at a margin NOT MORE THAN one percent (1%) above the purchase rate from CBN.
Other Requirements
Eligible BDCs are mandated to deposit their Naira payments into designated CBN Foreign Currency Deposit Naira Accounts. They must also provide confirmation of payment along with other necessary documentation to facilitate disbursement at the appropriate CBN branches located in Abuja, Awka, Lagos, and Kano.
More Insights
- This strategic intervention by the CBN is expected to enhance the efficiency of the foreign exchange market, providing a more transparent and equitable platform for the trading of the Naira.
- By directly addressing the retail market’s distortions, the CBN aims to foster a more stable economic environment conducive to growth and development.
- The CBN has made a number of significant reforms towards addressing Naira depreciation, such as probing and clearing FX backlog, limiting forex for foreign education and medical tourism, increasing BDCs’ minimum share capital, and curbing FX speculators, among others.
- As the CBN steps up its efforts to address the ongoing foreign exchange crisis, attention is also turning towards the escalating inflation rates in the country. With the first Monetary Policy Committee (MPC) meeting of the year concluding today, there are high expectations for the committee to unveil new monetary policy decisions aimed at curbing the rising tide of inflation.
