The Central Bank of Nigeria (CBN) has taken a decisive step to enhance liquidity in the retail segment of the foreign exchange (forex) market by issuing a circular to Bureau De Change operators (BDCs). In the circular, the CBN disclosed that it had sold $10,000 to each BDC at a rate of N1,251/$1. This move comes as the apex bank resumes dollar sales to BDC operators after a prolonged period of suspension in 2021.
According to the circular obtained by Nairametrics, each BDC is mandated to sell the allocated dollars to eligible customers at a rate not exceeding 1.5% above the purchase price. This effectively sets a ceiling for the selling price at N1,269/$1 for the BDCs. The decision to resume dollar sales to BDCs follows the revocation of licenses of over 4,173 BDC operators in February earlier this year.
The resumption of forex sales to BDCs signals the CBN’s renewed focus on enhancing liquidity in the retail forex market. Previously, the prohibition of forex sales to BDC operators was driven by concerns about price arbitrage, particularly during a period when the exchange rate was fixed. However, with the adoption of a market-determined exchange rate regime, the CBN believes that operators no longer have the incentive to engage in arbitrage by purchasing at lower rates from the CBN and selling at higher rates in the parallel market.
By enhancing liquidity in the retail segment, the CBN aims to stabilize the forex market, narrow the gap between official and parallel market rates, and reduce exchange rate volatility. This strategy is expected to make forex more accessible to retail and small-scale enterprises, fostering a more transparent and efficient market.
The impact of improved liquidity in the forex market could lead to a stronger Naira in the short term, especially if sustained. This projection is further supported by the anticipated hike in the Monetary Policy Rate (MPR) when the CBN’s Monetary Policy Committee (MPC) releases its communique on Tuesday.
With an estimated 1,500 BDC licenses remaining after the revocation earlier this year, it is estimated that over $15 million might have been injected into the retail end of the forex market through the recent dollar sales to BDCs. Before the revocation, Nigeria had an estimated 5,689 BDC licenses.
Overall, the CBN’s decision to resume dollar sales to BDCs represents a significant step towards enhancing liquidity and stability in the forex market, which is crucial for promoting economic growth and attracting foreign investment.
Join our Channel...