The Central Bank of Nigeria (CBN) may spend up to $110.81 million to sell foreign exchange (FX) to eligible Bureau De Change (BDCs) this year.
With at least five FX sales to BDCs so far, it is expected that this amount will be expended if all the approved 1,583 BDC operators buy from the apex bank.
This is according to all the circulars released by the CBN regarding the sales of FX to BDCs.
Based on the circulars, a total of $70,000 has been offered on sale to BDCs between February and July 2024.
How the sales have been done
After a prolonged period of suspension of FX sales to BDCs by the central bank in 2021, the ban was lifted earlier this year. This was followed by the revocation of licenses of over 4173 BDC operators in February 2024.
- The first FX sale was in February 2024, with the apex bank selling $20,000 to each BDCS at the rate of N1,301/$. This is expected to gulp $31.66 million to 1,583 BDCs.
- By the second attempt, the bank reduced the allocation by 50% and sold FX at a rate of N1,251/$1, with about $15.83 million expected to be spent on the same number of BDCs.
- 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. A total of $31.66 million would have been spent if all the approved BDCs paid for this FX for the month of April.
- On Thursday, July 18, 2024, the CBN announced the approval of the sales of FX to eligible BDCs to meet the demand for invisible transactions in a decisive step to strengthen the naira. 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.
However, the rate of this latest sale is the highest at which the CBN has sold FX to BDCs, which highlights the decline in the local currency this year.
It will also likely gulp $31.66 million if all the BDCs decide to pay and get this cheaper FX from the CBN. This brings the total for the five FX sales to $110.81 million.
The latest sale comes at a time when the naira faces constant pressure, inching toward the N1,600/$1 ceiling.
What you should know
- Earlier in April, Yemi Cardoso, CBN governor, stated that interventions in the BDC segment are minimal and targeted to ensure its effective integration into the broader market.
- Aside from selling to BDCs, the apex bank has also sold FX on the official market.
- In May 2024, the naira experienced consecutive double-digit appreciation on the official market, with sources saying that the CBN sold more dollars on the official market in anticipation of a $1.3 billion non-deliverable forward (NDF), which matured on May 29, 2024.
- According to sources with knowledge of the matter who spoke with Nairametrics in May, the apex bank reverted to its previous strategy of selling foreign currency below the market rate, hoping to artificially lower the exchange rate.
- Earlier this month, the CBN said that it sold $122.67 million to 46 authorized dealers.
- This move was aimed at promoting market stability and reducing volatility as the naira traded at the lowest level since March 2024.
