The Central Bank of Nigeria (CBN) has taken a decisive step to address the persistent distortions in Nigeria’s foreign exchange market, aiming to narrow the widening gap in exchange rates.
In a recent circular issued by Dr. Hassan Mahmud, the Director of the Trade & Exchange Department, the CBN announced its decision to provide $20,000 to each eligible Bureau De Change (BDC) operator nationwide.
This move is part of broader efforts to achieve a market-driven exchange rate for the Naira and ease pressures impacting the parallel market.
CBN Offers N1,301/$
The allocated funds will be sold at N1,301/$, reflecting the lower band rate of spot transactions executed at the Nigerian Autonomous Foreign Exchange Market (NAFEM) on February 27, 2024. This strategy aims to inject much-needed liquidity into the market and stabilize the Naira’s value.
CBN Sets Selling Rate Limit
The circular also outlines specific guidelines for BDC operators, allowing them to sell foreign exchange to end-users at a margin not exceeding one percent (1%) above their purchase rate from the CBN. This measure aims to prevent excessive mark-ups and shield consumers from price exploitation.
According to the circular:
“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 must deposit their Naira payments into designated CBN Foreign Currency Deposit Naira Accounts and confirm payment along with other necessary documentation to facilitate disbursement at designated CBN branches in Abuja, Awka, Lagos, and Kano.
Further Insights
This strategic intervention by the CBN is expected to enhance the efficiency of the foreign exchange market, providing a transparent and equitable platform for Naira trading.
By addressing distortions in the retail market, the CBN aims to foster a more stable economic environment conducive to growth and development.
The CBN has implemented various reforms to address Naira depreciation, including probing and clearing FX backlog, limiting forex for foreign education and medical tourism, increasing BDCs’ minimum share capital, and curbing FX speculators.
As the CBN intensifies efforts to tackle the ongoing foreign exchange crisis, attention is also turning towards escalating inflation rates. With the conclusion of the year’s first Monetary Policy Committee (MPC) meeting, expectations are high for new monetary policy decisions aimed at curbing rising inflation.
