Central Bank of Nigeria issues new FX guidelines to BDCs

In response to the current exchange rate crisis and the desire to improve exchange rate market efficiency, the Central Bank of Nigeria (CBN) has announced a new operational framework for the Bureau De Change (BDC) section of the foreign exchange market.

The BDC segment was first prohibited by the apex bank in 2021 in order to reduce the excesses of currency buyers and sellers, which caused the Naira to depreciate that year. The removal of these operating rules indicates that the segment has been reintroduced into the market.

According to the CBN, BDC agents must operate with (i) a spread on buying and selling within an allowable limit of -2.5% to +2.5% of the previous day’s Nigerian forex market window weighted average rate and (ii) a mandatory rendition of statutory periodic reports, failure to which could result in sanctions, including the withdrawal of operating license.

The CBN has lobbied for currency stability in recent months. Nonetheless, while the operating method for BDC operators appears to contradict the apex bank’s initial attitude of collapsing all windows into the I&E platform once the exchange rate is floated, it looks to be an attempt to tighten forex management and market control.

To maintain currency rate stability, the CBN will need to address such questions, establish which market windows are legally permitted to operate, and rigorously monitor and battle market speculators.