The persistent weakening of the naira and the volatility of the foreign exchange market have been attributed to the inconsistent dollar allocations by the Central Bank of Nigeria (CBN) to Bureau De Change (BDC) operators.
Currency traders and financial experts are raising concerns that the erratic nature of dollar sales is fueling instability in the forex market, thereby undermining efforts to stabilize the naira.
In July 2024, the CBN reintroduced dollar sales to BDC operators, a move aimed at addressing the forex scarcity at the retail end of the market.
The central bank approved the sale of $20,000 to each BDC operator at a rate of N1,450 per dollar, a significant intervention designed to curb the sharp depreciation of the naira, which had hit N1,600/$1 in the parallel market.
While this measure initially provided some relief, the positive impact was short-lived due to the lack of continuity in the CBN’s intervention.
BDC operators acknowledged the immediate benefit of the dollar sales, noting that the naira briefly appreciated following the announcement.
However, they also highlighted that the inconsistency of the CBN’s dollar supply has led to a renewed loss of confidence among forex market participants.
This uncertainty has driven more pressure onto the parallel market, exacerbating the volatility of the naira.
Aminu Gwadebe, President of the Association of Bureau De Change Operators of Nigeria (ABCON), emphasized the importance of regular and predictable dollar allocations to maintain market stability.
“The problem is the streamlining; only once, is it on the 18th of July or so? Like you said about three weeks, till now not any sales again,” Gwadebe said in a recent interview.
He further explained that the lack of frequent interventions has caused traders and their customers to lose confidence in the forex market, leading to an increase in demand pressure on the parallel market.
Gwadebe also pointed out that the operational difficulties faced by BDC operators, such as delays in receiving dollar allocations and inconsistent communication from the CBN, have further compounded the challenges in the market.
He urged the central bank to consider more frequent dollar sales, ideally on a weekly basis, to help restore confidence and stabilize the naira.
The CBN’s intervention in the forex market is not a new strategy. The bank has made several attempts to stabilize the naira through dollar sales to BDC operators since lifting a prolonged suspension on the practice in early 2023.
However, the sporadic nature of these interventions has been criticized for being insufficient to achieve lasting stability.
