CBN Sells Dollars to BDC in a Bid to Strengthen the Naira

The Central Bank of Nigeria (CBN) announced it has started selling $10,000 to Bureau De Change (BDC) operators, offering them direct access to US dollars at a discounted rate of N1,021 per dollar.

This is the fourth time the apex bank is selling this year and the second this month. The CBN's goal is to support the foreign exchange market and maintain the value of the naira relative to the dollar.

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This shows a strategic approach to controlling currency fluctuations and meeting necessary foreign exchange requirements.

The policy calls for $10,000 to be sold to qualified BDCs to meet the needs of the retail-end market. A report stated that this is especially important for invisible transactions such as travel allowances, tuition fees, and medical expenses.

Then, the BDCs are required to mark up their sales to end users by no more than 1.5 percent above the purchase price.

"We write to inform you of the sale of $10,000 by the Central Bank of Nigeria (CBN) to BDCs at the rate of N1,021/$1," stated the circular issued on Monday by the bank's Director, Trade & Exchange Department, Hassan Mahmud.

BDC operators are directed to sell the greenback exclusively to eligible end users at a spread "not more than 1.5 percent above the purchase price."

Financial analysts have also stated that the CBN's constant attempts to strengthen the local currency could harm foreign exchange, which has declined significantly as the naira gains value.

"All eligible BDCs are therefore directed to commence payment of the Naira deposit to the under listed CBN Naira Deposit Account Numbers from today, Monday, April 22, 2024, and submit confirmation of payment, with other necessary documentation, for disbursement of FX at the respective CBN Branches," the circular further specified.

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On Monday, data from the FMDQ securities exchange revealed that the naira's value at the official foreign exchange market declined to N1,234 against the US dollar.

According to the exchange rate, the naira dropped from N1,169.99/$1 on Friday by N65 or 5.26%.

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On Wednesday last week, the naira appreciated about N1,072.74, as traders predicted it would fall below N1,000/$1 for the first time.

It was reported in February/March that Nigeria's foreign exchange reserves would decline, which, however, happened. The Central Bank of Nigeria's most recent data shows that on April 18, 2024, the external reserves reached an all-time low of $32.1 billion. The reserves fell from $34.45 billion on March 18, 2024, to $2.35 billion in just 31 days.