The Central Bank of Nigeria (CBN) has introduced a new set of regulations with the intention of overseeing the activities of Bureau de Change (BDC) operators operating in the nation’s foreign exchange market. This development follows closely after Aminu Gwadabe, the President of the Association of Bureau de Change Operators of Nigeria (ABCON), advocated for BDCs to gain access to the official foreign exchange market. While the official foreign exchange market has observed a significant strengthening of the naira, challenges persist within the informal market.
Key Modifications in the Guidelines
In response to these dynamics, the Central Bank of Nigeria has imposed restrictions on BDCs by setting specific buying and selling rates in relation to the official exchange rate. This directive, communicated through a circular issued by Dr. O.S Nnaji, the Director of the Trade and Exchange Department, mandates BDC operators to maintain a trading margin between -2.5 percent and +2.5 percent of the prior day’s weighted average rate in the Nigerian Foreign Exchange market window.
Implementation of the Directive
Effectively, if the official window’s weighted average rate concludes at N700 to a dollar, BDCs will only be authorized to sell at rates exceeding N718 per dollar on the subsequent day. Furthermore, the CBN underscores the obligation for BDC operators to provide regular reports through the Financial Institution Forex Rendition System (FIFX). Non-adherence to this requirement may result in penalties, including potential revocation of operating licenses.
CBN’s Justification and Implications
The Central Bank of Nigeria has initiated these measures as part of its strategy to augment the effectiveness of the foreign exchange market, with immediate effect. The bank anticipates that these actions will contribute to curbing and harmonizing the diverse exchange rates prevalent across the country.
Exchange Rate Overview
Present data indicates that the difference between the parallel market and the official window has widened to N120.48 by the close of business on August 18, 2023. While the naira has strengthened to N739.52/$ in the official market, it has been trading at N860/$ in the parallel market and N858.5/$ in the Peer-to-Peer market, frequently employed by cryptocurrency traders.
Implications for CBN-BDC Relationship
The CBN’s decision to regulate the extent of BDC engagement in forex buying and selling signifies a significant shift in the landscape. This move could potentially signal a shift towards integrating over 5,000 BDC operators back into the forex market. Aminu Gwadabe, in a prior interview, proposed that this action aligns with the CBN’s objectives of enhancing monetary policy effectiveness and ensuring stability in the forex market.
BDC Environment in Nigeria
Currently, Nigeria has 5,691 CBN-approved BDC operators. Notably, the top ten states with the highest number of BDC operators include Lagos (2,958), FCT (1,179), Kano (981), Anambra (259), Kaduna (55), Abia (50), Oyo (32), Enugu (25), and Rivers (24).
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