The Central Bank of Nigeria has informed the general public that it is resuming its foreign exchange sales to the Bureaux de Change operators, as of Monday, September 7, 2020. Therefore injected $51.8 million into the forex market through the BDC operators.
The President of the Association of Bureaux de Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe said that each BSC operator had the naira equivalent of $10,000 put into their account. However, those operators that were suspended earlier might not get paid.
On the other hand, seeing how on Monday the black market price of the naira was N430/$, it’s now important for the BDC operators to follow regulations and reciprocate this gesture by the Central Bank of Nigeria in order for this injection to reap benefits.
A bit of history of CBN and FX
As the timeline of Nigeria’s forex devaluation shows, the CBN has been debunking speculation about the naira being devalued since the middle of March.
Due to COVID-19, the global economy experienced a serious hit as businesses and industries had to change the way they operate. One consequence of this was the crash of oil prices. As a measure to soften the blow that the coronavirus might have on the economy, the CBN adopted a single exchange rate instead of the multiple exchange rate policy that was used to establish the value of the naira.
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Furthermore, various operators were fined N5 million each because of infractions in the forex market before everything was shut down on March 27, due to the coronavirus-related global lockdown.
In April, however, the sale of dollars was allowed for SMEs that needed foreign exchange for imports as well as students in foreign countries that needed to pay school fees.
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In May, once the forex market was open again, the Central Bank of Nigeria pumped funds into the foreign exchange market. It is estimated that the CBN injected somewhere between $90 and $100 million into the system through the Wholesale Secondary Market Interventions. This was done with the intent of stabilizing the naira despite poor earnings due to the low prices of crude oil.
Moreover, Godwin Emefiele, the Governor of the CBN, warned individuals as well as businesses to stop using the black market to exchange foreign currency as they will be fined. According to a leaked memo, the CBN flagged a few dozen companies for “forex abuse” and instructed banks to block their accounts.
The impact of the forex market on the economy
It’s important to go through the official channels when it comes to forex as it can produce a huge boost for the economy. Forex is traded across the globe and is a huge market where trillions of dollars are traded on a daily basis. Not only is forex trading huge but it also keeps growing and advancing every day, as underlined by toponlineforexbrokers.com.
The foreign currency exchange market is there to facilitate trades between countries but it also aids governments, large companies, banks, and anyone else who wants to conduct transactions in different countries. Stronger countries have stronger economies and currencies, which makes them more influential.
By investing in the forex market, the CBN is looking to boost the value of the naira and thus strengthen the economy of the country. If a currency becomes valuable in the foreign exchange market, the country can make profits in the long run, which can lead to a better economy and overall growth.