The Central Bank of Nigeria (CBN) has announced the approval of the sales of FX to eligible Bureau De Change (BDCs) to meet the demand for invisible transactions in a decisive step to strengthen the naira.
In a circular signed by A. A Mahdi, the Acting Director, Trade and Exchange at the CBN, the bank announced that the sum of $20,000 is to be sold to each BDC at the rate of N1,450/$1.
This rate represents the lower band of the trading rate at the Nigerian Autonomous Foreign Exchange Market (NAFEM) from the previous trading day.
These sales come at a time when the naira faces constant pressure, inching toward the N1,600/$1 ceiling.
This measure is expected to meet the demand for invisible transactions and curb the widening exchange rate premium observed in the parallel market.
BDCs to sell at rates not exceeding N1,471.75/$1
To address these distortions and ensure a more stable exchange rate, the CBN’s approval allows BDCs to sell FX to eligible end-users with a margin not exceeding 1.5% above the purchase rate from the CBN.
This means that the BDCs cannot make more than N21.75 profit on each dollar they sell to their customers.
The circular read: “Following the on-going reforms in the foreign exchange market, with the objective of achieving an appropriate market-determined exchange rate for the Naira, the Central Bank of Nigeria (CBN) has observed the continued distortions in the retail end of the market, which is feeding into the Parallel market and further widen the exchange rate premium.
“To this end, the CBN has approved the sales of FX to eligible Bureau De Change (BDCs) to meet the demand for invisible transactions. The sum of $20,000 is to be sold to each BDC at the rate of N1,450/$ (representing the lower band of the trading rate at NAFEM in the previous trading day).
“All BDCs are allowed to sell to eligible end-users at a margin NOT MORE THAN one point five percent (1.5%) above the purchase rate from CBN.
“All eligible BDCs are directed to make the Naira payment to the listed CBN Naira Deposit Account Numbers and submit confirmation of payment with other necessary documentation for disbursement at the appropriate CBN Branches – (ABUJA, AWKA, KANO, and LAGOS)”
What you should know
This is the fifth attempt by the CBN to sell FX to BDCS after a prolonged period of suspension by the central bank in 2021. The ban was lifted earlier in the year following the revocation of licenses of over 4173 BDC operators in February.
The first attempt was in February 2023, with the apex bank selling $20,000 to each BDCS at the rate of N1,301/$. By the second attempt, the bank reduced the allocation by 50% and sold FX at a rate of N1,251/$1
There were two FX sales to BDCs in April 2024: the apex bank first offered $10,000 to each BDC at a rate of N1,101/$1, and another $10,000 at N1,021/$1.
The current rate is the highest at which the CBN has sold FX to BDCs, which highlights the decline in the local currency this year.
This latest move by the CBN comes at a critical time as the naira faces significant challenges in the forex market.
With 1,583 approved BDC operators, about $21.58 million may be injected into the retail end of the market during these sales.
By injecting more FX into the retail market, the CBN aims to reduce the disparities between the official and parallel market rates, which have exceeded N1,600 ceiling.
