Report reveals why CBN stopped selling Forex to BDCs

• The Central Bank of Nigeria (CBN) has reportedly stopped selling forex to Bureau de Change Operators (BDCs)
• A report said the move is to test the CBN’s reform template and minimize quick fixes in the FX market
• BDC operators have written to the CBN, offering the way forward to boost market liquidity and strengthen the naira

Legit.ng’s Pascal Oparada has reported on tech, energy, stocks, investment, and the economy for over a decade.

A new report has indicated that the Central Bank of Nigeria (CBN) may have finally stopped funding Bureau de Change Operators (BDCs).

The report, which emerged recently, states that the apex bank wants to further liberalize the FX market by testing its reform template and minimize quick fixes by applying mechanical approaches to institutional processes in FX market management.

CBN reportedly begins market reforms, ends FX sales to BDCs Credit: Bloomberg/Contributor
Source: Getty Images

CBN aims to unlock more forex

It said that the CBN is currently reviewing significant policies to strengthen the implementation or tweak its reforms.

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The policy reportedly aims to unlock FX liquidity in the medium to long term and build confidence in the Nigerian FX market.

The Guardian reports that the CBN governor, Olayemi Cardoso, has continued with the FX reforms handed down by the erstwhile Acting Governor, Folashodun Shonubi, to prevent the negative consequences of policy reversal.

In May 2024, the financial institutions regulator issued new regulatory guidelines for BDC operations, revoking existing licenses and asking the operators to reapply.

The new regime became effective June 3, with existing and new licenses having six months grace. 

The CBN guidelines did not explicitly support BDCs but listed funding sources such as the Nigerian Foreign Exchange Market (NFEM), international money transfer operators (IMTOs), and diplomatic missions in Nigeria if some requirements are met.

BDCs write CBN, seek FX support

The BDCs have often written to the CBN on the way forward but have not responded.

The Guardian report said that Aminu Gwadabe, president of the Association of Bureau de Change Operators of Nigeria (ABCON), disclosed that the last correspondence with CBN was delivered a month ago.

The apex bank commenced forex sales to the BDC operators in March and April this year, leading to the naira rapidly appreciating against the dollar and emerging as the world’s best-performing currency.

Experts disagree with CBN

Analysts believe the FX sales to BDCs boosted market liquidity and brought the official and parallel FX markets close to par.

Oluwaseun Ogedengbe, a forex trader, disclosed that the $10,000 weekly FX sales to BDCs were very helpful and lifted the pressure on the naira.

“The naira’s fortune reversed almost overnight. The gap between the official and parallel markets narrowed, with the dollar selling cheaper in the black market.“If indeed the CBN has ended forex support to BDCs, Nigerians should brace up for the naira’s worst performance in years. There is nowhere in the world that currencies are allowed to float endlessly. The CBN could try managed float to forestall the complete collapse of the naira.”

Data from the FMDQ Exchange shows that the naira lost N2 to the dollar on Friday, June 21, 2024, to trade N1,485 per dollar.

Another currency emerges as the best-performing in Africa

Legit.ng earlier reported that the Kenyan shilling currency has risen to a 15-month high against the US dollar.

The last time the shilling performed this strong was in March last year, rising from Shs161 per dollar to Shs 128.66 to remain one of the best-performing currencies in Africa.

Reports show that the performance is due to improved agricultural export inflows as dollar demand thaws among importers.

Source: Legit.ng