By 
The Central Bank of Nigeria (CBN) has refuted any plans to reintroduce weekly foreign currency sales to Bureau de Change (BDC) operators, following the implementation of a 2.5% cap on foreign exchange (FX) spreads.
The CBN addressed the speculation and confusion surrounding the possibility of resuming weekly foreign currency sales to BDCs. This comes in the wake of efforts to curb pressures in the parallel market and stabilize the deteriorating exchange rates.
This clarification follows the recent release of operational guidelines for Bureau De Change operators on August 17, 2023. The guidelines aimed to enhance the efficiency of the forex market and were implemented two years after the then CBN governor, Godwin Emefiele, announced the cessation of foreign exchange sales to this segment of the forex market.
The CBN’s decision to clear the air is driven by the aftermath of its politically-influenced naira devaluation, which led to concerns about corporate performance and a widening gap between official and parallel market FX rates.
Analysts anticipate that the challenges facing the local currency will persist due to contingency measures aimed at supporting the naira from further depreciation. Pressure points include escalating obligations on foreign exchange reserves.
Market observers and critics have raised suspicions that the naira reform was politically motivated, potentially causing disconnects between planning and execution, which could close the gap between official and parallel market rates.
The Naira has experienced a loss in value across various markets, trading at N920 per United States dollar in the open market where forex transactions are readily conducted. The demand for foreign currency continues to surge despite weak inflows from oil receipts and uncertainties surrounding Nigeria’s net external reserves.
On Friday, the premium between the official Investors and Exporters window and the parallel market surged to over N150 for each US dollar transaction. Exchange rates have deteriorated as the CBN has reduced market intervention due to weak inflows and decreasing gross external reserves.
The CBN’s operational guidelines specify an allowable spread of -2.5% to +2.5% of the Nigerian FX Market weighted average (WAR) of the previous day for operators. The guidelines also mandate the submission of periodic reports on the Financial Institution Forex Rendition System (FIFX), with potential sanctions for violations, including license withdrawal.
After adopting a managed-float FX regime in June, the CBN allows FX spot rates to be determined by supply and demand, with occasional government interventions to stabilize the market when necessary.
Market analysts from CSL Stockbrokers assert that the success of these new regulations hinges on the CBN’s provision of FX to BDCs. They recommend structural reforms to enhance the FX supply in the long term, as these secondary fixes are deemed sustainable only in the short term. While the CBN spokesperson stated that there are no plans to revert to weekly FX sales to BDCs, market observers emphasize the need for consistent FX supply for these measures to remain effective.
Comments