CBN Resumes Dollar Sales to BDCs Amidst Market Liquidity Drive

The Central Bank of Nigeria (CBN) has taken a significant step towards enhancing liquidity in the retail segment of the forex market by issuing a circular to Bureau De Change operators (BDCs), informing them of the sale of $10,000 to each BDC at a rate of N1,251/$1. This move marks the resumption of dollar sales to BDCs after a period of suspension in 2021.

According to the circular, BDCs are instructed to sell the dollars to eligible customers at a rate not exceeding 1.5% above the purchase price, which translates to a maximum selling rate of N1,269/$1. This decision by the CBN comes after the revocation of licenses of over 4,173 BDC operators in February, leaving an estimated 1,500 BDC licenses remaining.

The resumption of forex sales to BDCs indicates the CBN’s renewed focus on enhancing liquidity in the retail forex market. This move is expected to stabilize the forex market, narrow the gap between official and parallel market rates, and reduce exchange rate volatility. It is also aimed at making forex more accessible to retail and small-scale enterprises, fostering a more transparent and efficient market environment.

The CBN’s strategy is in line with its efforts to refocus the forex market under a new regime where the exchange rate is market-determined. This shift aims to eliminate the incentive for arbitrage, where operators purchase forex at lower rates from the CBN and sell at higher rates in the parallel market.

The impact of improved liquidity in the forex market could lead to a stronger Naira in the short term, especially with the anticipated hike in the Monetary Policy Rate (MPR) when the CBN’s Monetary Policy Committee (MPC) releases its communique.

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