Currency traders have attributed the persistent weakening of the naira and the volatility of the foreign exchange market to the lack of consistency in dollar allocation to the Bureau De Change (BDC) operators by the Central Bank of Nigeria (CBN).
The BDC operators, who admitted to the positive impact of the dollar sales by the CBN, however, noted that lack of continuity or frequency of the exercise gives rise to loss of confidence in the forex market by the customers thereby putting pressure on the parallel market.
They had advocated for the intervention by the CBN in the retail end of the market to be at least once or twice a week.
The CBN on July 18, 2024, approved the sales of $20,000 to Bureau De Change (BDC) operators at the rate of N1450/dollar as part of efforts to address forex scarcity, especially at the retail end of the market and strengthen the naira.
The allocation of forex to BDC operators was coming at a time when the demand pressure was high with the exchange rate hitting above N1600/$1.
In approving the sales of dollars to BDCs, the CBN noted that it had observed the continued distortions in the retail end of the market, which is feeding into the parallel market and further widening the exchange rate premium.
This measure is expected to meet the demand for invisible transactions, curb the widening exchange rate premium observed in the parallel market and ensure a more stable exchange rate.
CBN intervention
This is the fifth attempt by the CBN to sell forex to the BDC operators after a prolonged period of suspension by the apex bank in 2021 following allegations of illegal forex trading by these currency traders.
The ban was, however, lifted earlier in the year following the revocation of licenses of over 4173 BDCs in February.
The first attempt was in February 2023, with the CBN selling $20,000 to each BDC at the rate of N1,301/dollar, while the second attempt saw the apex bank reducing the allocation by 50% and sold forex at a rate of N1,251/dollar.
The dollar sales to the CBN licensed currency traders is one of the intervention measures by the apex bank aimed at boosting liquidity and stabilizing the forex market.
Others include periodic sales of dollars to authorized forex dealers and the recent reintroduction of the Retail Dutch Auction System, which saw the apex bank sell $876.26 million to end-users through the banks.
With the periodic sales of dollars to the BDC operators, the CBN appears to have yielded to pressure from the Association of Bureau De Change Operators in Nigeria (ABCON) who had advocated for participation in the foreign exchange market to help improve liquidity, especially in the retail end of the market.
They stated that their exclusion from the foreign exchange market and the lack of forex supply was causing the depreciation of the naira, insisting that without them the various exchange rate policies would not work.
Despite the CBN’s intervention in the forex market, the exchange rate is still high and volatile with the dollar trading at N1590 at the parallel market.
The BDC operators complained about the frequency of the dollar sales by the CBN, hinting that it is not enough the sustain the desired impact.
Lack of consistency
The President of ABCON, Aminu Gwadebe, in a chat with Nairametrics, acknowledged the immediate positive impact of the dollar sales with the appreciation of the naira.
He, however, noted that the lack of consistency in the exercise has led to the persistent volatility of the forex market with demand pressure and the weakening of the naira.
Gwadebe said, ‘’The problem is the streamlining, only once, is it on the 18th of July or so? Like you said about 3 weeks, till now not any sales again.’’
When asked if the CBN had redeemed the allocations to the BDCs as against the past when there were complaints of delays by the apex bank.
He said, ‘’That is true you know that after then, they resumed sales sometime in January, then around March, April, they withdrew completely and then in the middle of last month around 18th of July they came up with an announcement to sell $20,000. Before then the rates were hovering around N1650 or thereabout, so when they came out there was impact because the rate also came down to below N1600 to about N1580 thereabout.
‘’So you know the thing is continuity, once people know that it is not what is coming frequently, before you know it people will now lose confidence again because our customers cannot wait without any information as to when they will get forex after which they will get their ticket and then travel. So that really will push the pressure back to the parallel market, so that’s the problem.’’
On how often they want the apex bank to be selling dollars to them.
The ABCON President said, ‘’Every week, you know there was a time we were collecting three times a week, we want it sometimes twice a week, but even if it is once a week with frequency and volume and in line with cut-off time, so that will make everybody go to the market at the same time and the liquidity will come to the market at the same time. But if I know the window is open for one month for me to buy and with no cut-off time and then I am not sure when it will come again, people will not be encouraged to really come into the market.’’
Gwadebe added, ‘’There are some of us looking at it, you know the payment centres are centralized, so some people honestly you know are not encouraged because you will go today they will say come tomorrow, you will go tomorrow they will say come next tomorrow, so also the operational difficulty sometimes, even though they are trying to also improve on that to the extent you see some people they will pay in their money it will take them 3 to 4 days without even getting their payment (dollar sales), so those are some of the challenges.’’
What you should know
- The CBN had earlier in the year resumed the sales of forex to BDC operators after a prolonged period of suspension.
- This was followed by the revocation of operational licenses of over 4,173 BDCs in February 2024 over their failure to comply with some regulatory guidelines.
- The first dollar sales by the CBN was in February 2024 with the apex bank selling $20,000 to each BDC at the rate of N1,301/$. This was followed by a second attempt with the CBN selling $10,000 to BDCs at the rate of N1,251/$1.
- The strategic intervention by the CBN especially at the retail end of the forex market is expected to provide more liquidity and enhance the efficiency of the market.
