On December 19, 2024, the Central Bank of Nigeria granted access to Bureau De Change (BDC) operators to purchase foreign exchange from the Foreign Exchange Market (NFEM). This temporary access, according to the bank, was made to allow BDCs to stock up on forex at the NFEM rate, with a weekly trading cap of $25,000.
The CBN previously discontinued the sale of forex to BDC operators due to concerns over rent-seeking behaviour and involvement in money laundering activities. Additionally, the CBN aimed to eliminate street trading and standardise the operations of BDCs with technology to monitor their volumes and activities in real-time. The CBN also believed that BDCs were no longer serving the interests of those they were meant to protect, contributing instead to the instability of the forex market.
Over time, the ban has helped stabilise the forex market by reducing speculation and abuse. Also, by curbing forex speculation, the CBN helped reduce inflationary pressures and stabilise prices. In addition, it has helped to promote transparency in the forex market, making it easier for the CBN to monitor and regulate activities. Lastly, the CBN’s ban helped protect the value of the naira by reducing the impact of forex speculation and abuse.
Why then did the Bank decide to temporarily suspend the ban, one may ask? Already, the revision to the guideline has attracted responses from the public, with some acknowledging that though it would make forex available during the holiday season, the likelihood that it would depreciate again after January 30 may make nonsense of the appreciation that would be recorded over the six weeks leading up to January 30, 2025.
Indeed, the CBN’s decision is aimed at easing forex pressures during the yuletide season. This much was stated in the very first line of the letter from the bank’s Trade and Exchange Department. The primary objective is therefore to ensure that individuals and businesses have access to the foreign exchange they need in this season.
Will withdrawing the access after January 30, 2025 have an impact? Certainly. The removal of temporary access may lead to a shortage of forex in the market, causing exchange rates to fluctuate. With reduced forex supply, the naira may depreciate.
It will also stimulate increased parallel market activity. As BDCs lose access to forex, individuals and businesses may turn to the parallel market, which could lead to further exchange rate instability. This could hinder economic growth, particularly for industries reliant on imports, such as manufacturing and construction.
However, this needs to be viewed alongside the potential challenges the economy would have faced without this intervention. The absence of temporary access to forex for BDCs during the holiday season would have led to a more challenging economic environment, characterised by forex scarcity, exchange rate volatility, and inflationary pressures.
The demand for forex typically increases during the holiday season, and without this temporary access, BDCs might not have been able to meet this demand, leading to scarcity and with this reduced forex supply, the naira might have depreciated, making imports more expensive and potentially fueling. Coming during the holidays. This would have further exacerbated the hardship Nigerians are being confronted with.
BDCs often serve small businesses and individuals who need forex for imports, travel, or other purposes. This CBN’s revision provides support for these groups and by increasing forex supply, the CBN hopes to stabilise the exchange rate, making it easier for businesses and individuals to plan and budget during and in the period immediately after the holidays.
Without discounting the concerns and observations of those who advocate for a different approach, it is important to mention that Nigeria’s forex market has faced challenges over the years including scarcity and volatility. Being responsible for regulating the forex market, the CBN wants to support economic growth by making forex more available and affordable.The CBN is trying to address these issues.This temporary access is part of their efforts to ensure the market functions smoothly. A stable exchange rate and increased forex supply can help reduce inflation, making goods and services more affordable.
It is important to highlight, however, that for some of the gains to be sustained in the long term. the CBN may consider other interventions by implementing policies to stabilise the exchange rate, such as adjusting interest rates or introducing new forex regulations.
Samson, a policy analyst, wrote from Wuse 2, Abuja.
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