CBN sells foreign exchange
CBN has taken a significant step towards enhancing foreign exchange liquidity and addressing the demand for invisible transactions by announcing the second tranche of foreign exchange (FX) sales to bureau de change (BDC) operators. This move comes nearly a month after the apex bank resumed the sale of FX to BDCs on February 27, 2024.
In the first tranche, each eligible BDC was allocated $20,000 at the rate of N1,301 per dollar, representing the lower band rate of executed spot transactions at the Nigerian Autonomous Foreign Exchange Market (NAFEM) for the previous trading day. However, in the recent circular dated March 25, 2024, the CBN has introduced a new rate for the second tranche of sales.
Under the second tranche, the CBN has sold $10,000 to each eligible BDC at a lower rate of N1,251 per dollar. This rate is significantly below the N1,431 per dollar rate at which the official window closed on March 22 and the N1,470 per dollar rate reported in the parallel market on the same day.
The CBN’s decision to sell FX to BDCs at a lower rate of N1,251 per dollar has several implications:
- Boosting FX liquidity: By injecting more dollars into the market through BDCs, the CBN aims to increase foreign exchange liquidity and address the demand for invisible transactions, such as educational fees, medical expenses, and other eligible transactions.
- Narrowing the parallel market premium: The lower rate of N1,251 per dollar could potentially narrow the gap between the official and parallel market rates, reducing the incentive for round-tripping and currency speculation.
- Stabilizing the naira: By providing a more competitive rate for BDCs, the CBN hopes to stabilize the naira’s exchange rate and promote confidence in the currency.
- Addressing invisible transactions: The primary objective of the FX sales to BDCs is to meet the demand for eligible invisible transactions, which are essential for Nigerian businesses and individuals engaged in international activities.
Furthermore, the CBN has instructed BDCs to sell the purchased FX to eligible end-users at a spread of not more than 1.5 percent above the purchase price. This measure aims to ensure that the benefits of the lower exchange rate are passed on to consumers and businesses while providing a reasonable margin for BDCs.
However, it is crucial to note that the CBN has warned of sanctions, including outright suspension from further participation in the FX sales, for any BDC found in breach of the stipulated terms and conditions.
The CBN sells foreign exchange to BDCs at a lower rate demonstrates its commitment to addressing the challenges in the foreign exchange market and promoting stability in the economy. However, the success of this initiative will depend on various factors, including the CBN’s ability to sustain a consistent supply of foreign exchange, the responsiveness of the parallel market, and the overall economic conditions in the country.