February 29, 2024/CSL Research

In the last few weeks, the Central Bank of Nigeria (CBN) has been revising the extant laws and regulations guiding Bureau de Change (BDC) operations in the country. Most recently, through a circular dated 27-Febraury-2024, the CBN approved the sale of US$20,000 to each eligible Bureau De Change (BDC) operator across the country.

The BDCs will get the dollars from the CBN at the lower band rate of executed spot transactions at the Nigerian Autonomous Foreign Exchange Market (NAFEM) for the previous trading day. BDCs are allowed to sell the dollars to end-users with a maximum margin of one percent above the purchase rate from the CBN.

The Central Bank of Nigeria (CBN) has reinstated the sale of dollars to Bureau de Change (BDC) operators, with the primary objective of rectifying price distortions observed in the retail segment of the foreign exchange market. This strategic move is part of the overarching efforts to establish a market-driven exchange rate for the Naira.

The aim is to alleviate the factors contributing to discrepancies between the official market and the parallel market exchange rates, ultimately working towards narrowing this gap. By addressing these issues, the CBN seeks to foster stability and coherence in the foreign exchange market.

The announcement triggered an immediate response in the foreign exchange market, leading to a notable decrease in the exchange rate to N1,590/US$ as of 27-February-2024, compared to the pre-announcement rate of N1,800/US$. The observed change is indicative of the potential impact of this development on market dynamics.

We anticipate that if the Central Bank of Nigeria (CBN) consistently allocates funds to Bureau de Change (BDC) operators, it could contribute to increased stability in the foreign exchange market. However, the efficacy of this measure in stabilizing the currency will hinge on the extent to which the US$20,000 allocation meets the demand currently directed towards the parallel market.

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