CBN’s $450m Inflow To BDCs Stabilise Naira

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The Central Bank of Nigeria (CBN) has injected over $450 million into the Bureau De Change (BDC) segment of the foreign exchange market to keep the naira stable.

The dollar injections, which came after the apex bank resumed dollar sales to the BDCs, was to curb exchange rate volatility and protect the naira against attacks from forex speculators and black market traders.

In a report released yesterday tilted: ‘Forex Trade Ahead’, Trading Desk Manager at AZA, a cross-border payments platforms and forex trading firm, Murega Mungai said the naira has recovered against the dollar, trading 1.56 per cent higher from a week ago at N457 to dollar at the parallel market. But on the official market supported by the CBN, the naira traded at N379 to dollar.

In a note to investors, Mungai said the key driver for the naira stability and decreased volatility in the market was CBN pumping over $450 million to BDCs to support the local currency in the face of continued dollar scarcity.

He said: “While the sustainability of this support is questionable, we foresee the local currency hovering at 455 levels”.

The CBN had in a move to strengthen the naira, resumed dollar sales to BDCs on September 7 after three months of suspending the exercise. Each of the over 5,000 CBN-licenced BDCs now get $10,000 twice weekly.

CBN Director, Trade and Exchange Department, O.S Nnaji, said the gradual sales of forex to licensed BDCs was part of efforts to enhance accessibility of foreign exchange particularly to travelers.

“The CBN also announced the applicable exchange rate for the disbursement of International Monetary Transfer Operators (IMTOs) proceeds as IMTOs to banks, N382 to dollar; banks to CBN, N383 to dollar, CBN to BDCs, N384 to dollar and BDCs to end users not more than N386 to dollar,” he said.

President, Association of Bureaux De Change Operators of Nigeria (ABCON) Aminu Gwadabe said the resumption of dollar sales to BDCs has led to nearly N40 appreciation of the naira in the first week of the exercise, and saved the local currency from continued depreciation.

He said the CBN’s aim of easing pressure on supply and firming up the naira succeeded and will continue to be achieved with improved liquidity in the market.

In a note to all BDCs, Gwadabe said the apex bank had warned that any act of hoarding and speculation will be penalized, urging members to “trade only within allowable exchange rates with reliable documentation. While the weekly sales volume is $10,000.0 per BDC, the CBN directed BDCs to buy at N384 and sell at a cap of N386.00/$1.00”.

He however, said margin review for the BDCs, which buy dollar from the CBN at N384/$1 and sell at N386/$1. “The N2 margin earned by BDCs from every dollar sold is barely enough to cover their operating costs and keep over 15,000 Nigerians employed by the sector, hence the assertion that BDCs business is one of the lucrative business in the country is wrong,” he stated.

Gwadabe added that BDCs operate only within the allowable scope of transactions ie Personal Travel Allowances (PTAs), Business Travel Allowances (BTAs), school fees, medicals, among others adding that BDCs all over the world are important retail sector of the foreign exchange market.

He with the resumed dollar sales to BDCs, the pressure forced on the parallel market by forex end users seeking dollar to buy dollar for PTAs, BTAs, school fees, medicals, among others are now being handled by BDCs.

“The BDCs in Nigeria have over the years remained the most portent tool of exchange rate stability management of the CBN when ever the local currency suffers as seen in 2006, 2009, 2016 and 2020. The operators are required to sale dollar at the CBN approved rate, a practice that has reduced pressure on the naira,” he said.

He said that BDCs will continue to meet compliance requirements specified by Financial Action Task Force (FATF) and local regulators adding that the collation and reporting of foreign currency transactions and suspicious transactions by BDCs are now fully automated.

– The Nation

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