Naira faces unprecedented volatility as BDC operators raise alarm

The Association of Bureau De Change Operators of Nigeria (ABCON) has sounded the alarm over the escalating instability of the naira, describing it as one of the most unpredictable currencies in the world. The association attributed the situation to a combination of trade wars, interest rate fluctuations, and speculative attacks.

ABCON President, Aminu Gwadebe, expressed concern over the turbulence in the foreign exchange (forex) market, stating that licensed currency traders are grappling with a severe forex shortage. He also accused commercial banks of withholding dollars from Bureau De Change (BDC) operators, exacerbating the crisis.

Speaking over the weekend, Gwadebe highlighted key challenges affecting Nigeria’s forex market, including global economic uncertainty, shifting regulatory policies, and technological disruptions.

He noted that slowdowns in major economies such as the United States, Europe, and China have reduced global trade volumes, increasing volatility in currency markets.

According to him, regulatory changes, particularly the recapitalization policy for BDCs, have imposed additional compliance costs on forex brokers, leading to liquidity constraints.

Other factors, such as the increasing use of artificial intelligence (AI) in forex trading, electronic trading networks, and machine learning algorithms, have added complexities to the market while raising concerns about potential market manipulation.

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“The naira, unfortunately, is suffering an inconsistent journey, bedeviled by all kinds of wars ranging from trade war, rate war, and speculative attacks, making it the most unpredictable currency in the world,” Gwadebe lamented.

Gwadebe further highlighted how geopolitical tensions and global economic policies, such as the US-imposed tariffs, have led to capital flight from Nigeria, worsening the forex market situation. He pointed out that increased uncertainty has prompted portfolio investors to withdraw funds to safer economies, thereby putting additional pressure on the naira.

To mitigate these challenges, the ABCON President recommended several measures for the government and financial regulators:

Exchange Rate Unification: The Central Bank of Nigeria (CBN) should continue with its efforts to unify exchange rates by eliminating restrictions and implementing a “willing buyer, willing seller” framework.

Increased Transparency: The CBN should improve its communication regarding forex demand and supply trends, which will help curb speculation.

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BDC as Direct Agents of IMTOs: Making BDCs direct agents of International Money Transfer Organizations (IMTOs) will enhance liquidity and reduce volatility.

Strengthening External Reserves: Nigeria should focus on growing its foreign exchange reserves through increased foreign investment, export expansion, and efficient import management.

Raising Bank Liquidity Ratio: The government should consider increasing banks’ liquidity ratio to 40% to facilitate forex availability.

Due to the persistent forex crunch, commercial banks have responded by imposing restrictions on international transactions. Some banks have limited the amount of foreign currency withdrawals and international transfers by customers, as part of efforts to manage the crisis.

Gwadebe emphasized the need for forex market participants to stay informed, collaborate with stakeholders, and adapt to evolving regulations. He advised them to adopt effective risk management strategies to navigate the current turbulence and counteract negative market perceptions.

ABCON had previously linked the recent crash of the naira to heightened demand for forex following windfall payments and financial disbursements by certain federal government agencies.

Gwadebe noted that the market has been subjected to speculative attacks, warning that without consistent policy implementation by regulators, volatility would persist.

Despite the current shocks in the forex market, he remained optimistic, stating that the fluctuations are largely speculative and would eventually subside. He urged authorities to take proactive measures to stabilize the economy and restore confidence in the naira.