In a bid to address the prevailing imbalances in Nigeria’s foreign exchange market, the Central Bank of Nigeria (CBN) has taken proactive measures to narrow the widening gap in exchange rates.
In a recent circular issued by Dr. Hassan Mahmud, Director of the Trade & Exchange Department, the CBN has announced its decision to provide $20,000 to each eligible Bureau De Change (BDC) operator nationwide.
This initiative forms part of broader strategies aimed at achieving a more market-driven exchange rate for the Naira and mitigating pressures on the parallel market.
CBN Sets Exchange Rate at N1,301/$ Under this allocation, BDCs will trade at a rate of N1,301 per dollar, mirroring the lower band rate of spot transactions executed at the Nigerian Autonomous Foreign Exchange Market (NAFEM) on the preceding trading day, dated February 27, 2024. This move is anticipated to inject much-needed liquidity into the market, thereby stabilizing the value of the Naira.
CBN Imposes Selling Rate Limit Additionally, the circular delineates specific guidelines for BDC operators, specifying that they may 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 curb excessive mark-ups and shield consumers from price exploitation.
According to the circular:
“The CBN has authorized the sale of foreign exchange to eligible Bureau De Change (BDCs) to cater to the demand for invisible transactions.
Each BDC will receive $20,000 at the rate of N1,301/$- (reflecting the lower band rate of spot transactions at NAFEM for the previous trading day, as of February 27, 2024).”
All BDCs are permitted to sell to end-users at a margin NOT EXCEEDING one percent (1%) above the purchase rate from CBN. Additional Requirements Eligible BDCs are required to deposit their Naira payments into designated CBN Foreign Currency Deposit Naira Accounts.
Furthermore, they must furnish confirmation of payment along with other requisite documentation to facilitate disbursement at designated CBN branches situated in Abuja, Awka, Lagos, and Kano.
Further Insights This strategic intervention by the CBN is poised to enhance the efficiency of the foreign exchange market, fostering a more transparent and equitable trading platform for the Naira. By directly tackling distortions in the retail market, the CBN aims to cultivate a more stable economic environment conducive to growth and development.
ALSO READ: Rising prices of fuel and commodity could lead to social unrest in Nigeria – AfDB
The CBN has implemented several significant reforms to address Naira depreciation, including addressing and clearing FX backlogs, restricting forex for foreign education and medical tourism, raising BDCs’ minimum share capital, and curbing FX speculation, among others.
As the CBN intensifies efforts to tackle the ongoing foreign exchange crisis, attention is also shifting towards the escalating inflation rates in the country.
With the conclusion of the first Monetary Policy Committee (MPC) meeting of the year today, there are high expectations for the committee to unveil new monetary policy decisions aimed at mitigating the rising tide of inflation.
