A curious twist has emerged in Nigeria’s foreign exchange market, leaving Bureau De Change (BDC) operators in a precarious position. The Association of Bureau De Change Operators of Nigeria (ABCON) reports that its members are now hesitant to purchase foreign exchange from banks, a direct consequence of the parallel market rate falling below the interbank proceeds sales to BDCs. This unexpected development, as articulated by ABCON President Aminu Gwadebe, underscores the delicate balance the Central Bank of Nigeria (CBN) seeks to maintain.
“Currently, the naira has maintained its stability and appreciation in the foreign exchange market,” Gwadebe noted, reflecting the initial success of recent CBN policies. However, he also highlighted a significant anomaly: “What we are witnessing now is a situation where the parallel market rate is even trading lower than the interbank proceeds sales to BDCs.”
This reversal, where the parallel market, historically known for its higher rates, now offers lower prices than banks, creates a financial disincentive for BDCs. “For instance, yesterday, while the banks are offering a weighted average of N1505/$, the parallel market levels were at N1503/$ which even makes the BDCs constrained to buy from the Banks,” Gwadebe explained.
This situation raises critical questions about the sustainability of the naira’s recent gains. While the CBN’s policies aimed at converging official and parallel market rates have shown initial promise, the current divergence suggests a potential market correction or, perhaps, an overcorrection.
Implications
For everyday Nigerians, this fluctuation translates to uncertainty. Small businesses and individuals relying on foreign exchange for imports or travel face potential disruptions. The initial optimism surrounding the naira’s appreciation offered a glimmer of hope for reduced living costs, but the current volatility threatens to undermine that progress. As one might observe, the emotional weight of financial instability is palpable. The average citizen, striving to make ends meet, views these economic shifts with a mixture of hope and trepidation.
Gwadebe’s call for the CBN to introduce “a prudential percentage on volumes of sales on diaspora remittances and portfolio investment proceeds by the banks to the BDC operators” is a strategic move to stabilize the market. This aims to ensure a consistent forex supply and curb speculative activities that can destabilize the naira. He also emphasizes the necessity of “continuing regulatory oversight on transparency of participants as regards the maximum margin on sales by the banks to the BDCs.”
In essence, ABCON is advocating for a balanced approach: maintaining the naira’s strength while ensuring the BDCs can effectively play their role in the retail forex market. “The CBN should also not abandon the calibration of their intervention sales to the BDCs as the catalytic actor in the foreign exchange market to continue to back the naira strength,” Gwadebe stated.
Furthermore, he acknowledges the broader economic context, commending “the fiscal authorities on their efforts to reduce the fiscal deficit.” He also calls for a “state of emergency on inflation,” recognizing that “alleviating the sufferings of many Nigerians” requires a holistic approach.
The recent appreciation of the naira, driven in part by the CBN’s policy of allowing banks to sell forex directly to BDCs, has instilled a degree of confidence. According to earlier reports, “the BDC operators revealed that there is a lot of forex inflow coming into the interbank window with growing investors’ confidence and huge portfolio investments coming into the banks.”
However, the current market anomaly underscores the need for continuous monitoring and adaptive policy adjustments. The CBN’s ability to navigate these complexities will be crucial in ensuring the long-term stability of the naira and fostering a resilient economy.
