FX traders cite inconsistent dollar allocation as key factor in Naira’s weakness

Currency traders have linked the naira’s ongoing decline and the forex market’s volatility to inconsistent dollar allocations by the Central Bank of Nigeria (CBN) to Bureau De Change (BDC) operators.

While acknowledging the benefits of recent dollar sales, BDC operators have criticized the lack of regularity in these allocations, which undermines market confidence and exerts pressure on the parallel market.

On July 18, 2024, the CBN sold $20,000 to BDC operators at N1450 per dollar to address forex scarcity and bolster the naira, amid high demand and an exchange rate exceeding N1600 per dollar.

This allocation aimed to stabilize the retail forex market, which has been distorted and contributing to the parallel market’s rate premium.

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This was the CBN’s fifth attempt to sell forex to BDCs following a suspension in 2021 due to illegal trading allegations. The initial attempt in February 2023 sold $20,000 per BDC at N1,301 per dollar, with subsequent reductions in allocations and rates.

Despite these interventions, the naira remains volatile, trading around N1590 per dollar in the parallel market.

 The Association of Bureau De Change Operators in Nigeria (ABCON) has urged for more frequent dollar sales, suggesting at least once or twice a week, to enhance market stability and liquidity.

ABCON President Aminu Gwadebe highlighted that the inconsistency in dollar sales has led to renewed volatility and customer uncertainty.

He called for a more predictable and frequent schedule to improve market confidence and reduce pressure on the parallel market.

The CBN’s strategic interventions, including periodic sales and the reintroduction of the Retail Dutch Auction System, aim to improve liquidity and stabilize the forex market.

However, the challenges of operational delays and inconsistent supply continue to impact the effectiveness of these measures.