In a bid to address the persistent depreciation of the naira against the US dollar, the Central Bank of Nigeria (CBN) has announced the sale of foreign exchange worth $20,000 to eligible Bureau De Change (BDC) operators across the country. This decision, as disclosed by the apex bank in a statement signed by Dr. W. J Kanya, Acting Director of Trade and Exchange Department, aims to meet the growing retail market demand for foreign exchange for eligible invisible transactions.
The CBN’s intervention comes on the heels of the naira’s further decline in value against the dollar. On Tuesday, the Nigerian Autonomous Foreign Exchange (NAFEM) rate closed at N1,658.48 per dollar, while the parallel market rate reached N1,670 per dollar. This continued depreciation has raised concerns among businesses and individuals alike, as it can fuel inflation and increase the cost of imported goods.
CBN’s Conditions for BDC Operators
To ensure that the foreign exchange injection benefits the retail market and prevents speculative activities, the CBN has imposed certain conditions on the BDC operators. Firstly, the operators are required to sell the foreign exchange to eligible end-users at a margin of not more than one percent above the purchase rate from the CBN. This means that the BDCs cannot make excessive profits from the transaction.
Secondly, the BDCs are obligated to make the Naira payment to the CBN Deposit Account Numbers assigned to them. Additionally, they must submit payment confirmation and all necessary documentation to the appropriate CBN branches for collection of the $20,000. These measures are designed to prevent the foreign exchange from being diverted to the parallel market or used for speculative purposes.
Impact of CBN’s Intervention on the Retail Market
With 1,583 approved BDC operators, the CBN’s injection of $20,000 per operator translates to a total of $31.66 million being introduced into the retail foreign exchange market. This is expected to provide a significant boost to liquidity and help stabilize the naira exchange rate at the retail level.
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However, the effectiveness of this intervention will depend on several factors, including the demand for foreign exchange in the retail market, the behavior of BDC operators, and the broader economic conditions in Nigeria. If the demand for foreign exchange remains high or if BDC operators engage in speculative activities, the impact of the CBN’s intervention may be limited.
If You Ask: Outlook for the Nigerian Naira
The outlook for the Nigerian naira remains uncertain. The CBN’s intervention in the retail foreign exchange market is a step in the right direction, but it is unlikely to be sufficient to address the underlying challenges facing the currency.
To achieve a more sustainable stabilization of the naira, Nigeria will need to implement a comprehensive set of reforms to boost its foreign exchange earnings, reduce its dependence on imports, and improve its investment climate. Only by addressing these fundamental issues can the naira be put on a stronger footing.
