By Our Reporter
Currency dealers have decried the weakness of the naira and the volatility of the foreign exchange market, attributing the trend to the lack of consistency in dollar allocation to the Bureau De Change ,BDC, operators by the Central Bank of Nigeria, CBN.
Although the BDC operators acknowledged the positive impact of the dollar sales by the CBN, they noted that lack of continuity or frequency of the exercise had led to loss of confidence in the forex (FX) market by the customers thereby putting pressure on the parallel market.
The BDC operators had sought for the intervention by the CBN in the retail end of the market to be at least once or twice a week.
The Apex bank on its own had 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.
This was when the demand pressure was high with the exchange rate moving above N1600 per dollar.
Following the approval, the CBN noted that it had observed the continued distortions in the retail end of the market, which is entering into the parallel market and further widening the exchange rate premium. The action taken expected to meet the demand for invisible transactions, check the widening exchange rate premium noted in the parallel market and ensure a more stable exchange rate.
And, regarding the CBN intervention, this is the fifth attempt by the apex bank to sell forex to the BDC operators after a long suspension of activities in 2021 following allegations of illegal forex trading by the currency dealers. But the suspension was lifted earlier in the year following the revocation of licenses of over 4173 BDCs in February.
There was the first attempt 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 interventions by the regulatory bank , as a way of boosting liquidity and stabilizing the forex market, while 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, were among other interventions.
The periodic sales of dollars to the BDC operators appears to be an indication that the CBN had succumbed 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 boost liquidity, especially in the retail end of the market.
They hinged their exclusion from the foreign exchange market and the lack of forex supply on the depreciation of the naira, stressing that without their participation the exchange rate policies by the government through the CBN would not yield any positive result.
But, in spite of the CBN’s intervention in the FOREX, the exchange rate remains volatile with the dollar trading at N1590 at the parallel market.
The operators had complained about the frequency of the dollar sales by the CBN, noting that it is not enough the sustain the desired impact.
Speaking on the interventions, the President of ABCON, Aminu Gwadebe, noted the immediate positive impact of the dollar sales with the appreciation of the naira.
However, Gwadebe observed that the lack of consistency in the exercise which has led to the persistent volatility of the FOREX, leading to demand pressure and the weakening of the naira.
‘’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,” he said.
On the BDC operators expectation concerning the sale of dollars to them by the CBN, the ABCON President stated, ‘’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.’’
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.
About The Author
