The Central Bank of Nigeria has mandated that Bureau de Change operators purchase $25,000 weekly from authorized dealers.
The difference between the official foreign exchange (FX) rates and those in the parallel market is getting smaller, thanks to various measures from the Central Bank of Nigeria (CBN).
On Wednesday, the naira strengthened to N1,585 per dollar, breaking through the N1,600 mark in the black market. In the official FX market, the naira remained steady, with the dollar priced at N1,499.76, a slight increase from N1,498.95 the day before, according to FMDQ Securities Exchange Limited data.
As a result, the gap between the official and black market rates has narrowed by N85.24/$.
Over the past month, the naira has appreciated by five percent, climbing N80 from the N1,665 rate at the start of the year in the parallel market, commonly known as the black market.
On Tuesday, the local currency held steady at an average of N1,600 per dollar, compared to N1,599.33 on Monday in the black market.
In the official FX market on Tuesday, the naira remained stable at N1,499 per dollar, according to data from the CBN, which reflects the Nigerian Foreign Exchange Market (NFEM), the official FX platform for Africa’s fourth largest economy.
Currency traders attribute the naira's rise to better dollar availability and a decrease in demand for the currency, following the central bank's policies.
In his Monetary Policy Committee statement, Governor Olayemi Cardoso of the CBN attributed the increased capital flows, relative foreign exchange market stability, and narrowing exchange rate disparities across market segments to the impactful monetary tightening measures implemented since the beginning of the year.
Aloysius Uche Ordu, a member of the Monetary Policy Committee (MPC), pointed out in his statement that the exchange rate has remained fairly stable for most of the second half of 2024, reflecting increased capital inflows due to attractive yields.
External reserves dropped to $39.55 billion as of February 4, 2025, but Bala Moh’d Bello, a member of the MPC, pointed out that they had actually risen to $40.88 billion by November 21, 2024, up from $40.06 billion at the end of October 2024. This increase is crucial for building a buffer against unexpected risks and highlights the ongoing efforts to maintain a steady supply of foreign exchange.
With reserves on the rise and the exchange rate remaining relatively stable, Nigeria is looking more appealing as an investment spot.
Bandele A.G. Amoo, another MPC member, noted that total foreign exchange flowing through the economy hit $6.175 billion in September 2024, a significant jump from $2.570.6 billion in August 2024.
By the end of October 2024, foreign reserves were at $39.68 billion, which is enough to cover several months' worth of imports.
He also mentioned that external reserves are expected to keep growing by the end of the year, thanks to a decrease in import demand pressures from the full deregulation of the downstream oil sector, a reduction in petroleum product imports, and increased inflows managed by the CBN.
The CBN clarified that any foreign exchange bought by BDCs must be sold to end-users with a maximum margin of 1 percent above the buying rate, applicable to all funds, no matter where they come from.
“Foreign exchange cash purchased by BDCs from Authorised Dealer Banks shall be sold to foreign exchange end-users at a rate not exceeding 1 percent margin above the buying rate,” the CBN stated.
Additionally, BDCs are required to submit daily reports on their foreign exchange purchases from authorized dealers and other sources, as well as their sales, through the Financial Institutions Forex Reporting System (FIFX).
Funds that BDCs buy can only be used for certain approved expenses, like Business Travel Allowance (BTA), Personal Travel Allowance (PTA), overseas school fees, and medical costs abroad. Each transaction can’t exceed $5,000 every quarter.
Also, every transaction record needs to include the BVN of the end-user and the amount disbursed must be noted in the beneficiary's International Passport.
The CBN emphasized that Authorized Dealer Banks and BDC operators must strictly follow Anti-Money Laundering Laws and adhere to proper KYC practices when managing these transactions.
The circular also warned that any authorized dealer or BDC that breaks these rules or misuses funds will face serious penalties, including the potential suspension of their dealership license.
Authorized dealers are allowed to sell foreign exchange cash to BDCs, but there’s a cap of $25,000 per week for each BDC.
A BDC should go to its chosen Authorized Dealer Bank (ADB) and can only get that amount from that specific bank each week. Not following this rule will lead to penalties.