CBN Continues Forex Reforms to Stabilize Naira
By Patience Ikpeme
In a decisive move aimed at stabilizing the Naira and mitigating distortions in the foreign exchange market, the Central Bank of Nigeria (CBN) has announced a policy directive targeting the retail end of the market.
The latest circular, issued by A.A. Mahdi, the Acting Director of the Trade and Exchange Department, outlines significant reforms intended to align the exchange rate with market realities and curb the widening exchange rate premium observed in the parallel market.
The CBN has granted approval for the sale of foreign exchange (FX) to eligible Bureau De Change (BDC) operators. This measure aims to meet the increasing demand for invisible transactions, which include personal travel allowances, medical bills, and school fees, among others.
Each eligible BDC will receive a sum of $20,000. This allocation is to be sold at an exchange rate of N1,450 per dollar. This rate represents the lower band of the trading rate observed at the Nigerian Autonomous Foreign Exchange Market (NAFEM) on the previous trading day.
The circular stipulated that BDC operators are permitted to sell FX to eligible end-users at a margin not exceeding 1.5% above the purchase rate from the CBN. This regulation is designed to prevent excessive markups and ensure that the benefits of the CBN’s intervention are passed on to the end-users.
BDC operators are required to make the corresponding Naira payments to the specified CBN Naira Deposit Account Numbers. Confirmation of payment, along with other necessary documentation, must be submitted for verification and subsequent disbursement at designated CBN branches in Abuja, Awka, Kano, and Lagos.
The CBN’s latest intervention comes amidst ongoing reforms in the foreign exchange market aimed at achieving a market-determined exchange rate for the Naira. The persistent distortions at the retail end of the market have been a significant concern for the CBN, as these anomalies feed into the parallel market, exacerbating the disparity between official and unofficial exchange rates.
By facilitating the direct sale of FX to BDCs at a regulated rate, the CBN hopes to reduce the pressure on the parallel market and narrow the exchange rate premium. This approach is expected to enhance transparency and efficiency in the forex market, ensuring a more stable and predictable exchange rate regime.
The announcement has been met with a mixed response from market stakeholders. Some BDC operators have welcomed the move, expressing optimism that the measure will increase the availability of FX and stabilize the Naira. However, others have raised concerns about the sufficiency of the allocated amount and the potential for administrative bottlenecks in the disbursement process.
As the CBN continues to implement its comprehensive forex market reforms, the coming weeks will be critical in assessing the effectiveness of these measures. The success of this initiative will largely depend on the strict adherence to the outlined guidelines by BDC operators and the CBN’s ability to monitor and enforce compliance.
