Nigeria’s central bank suspends sale of $ 5.7 billion to exchange bureaus | News from banks

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The measure may lead to an initial depreciation in the value of the naira.

Nigeria’s central bank has halted the sale of foreign currency to exchange bureaus to ease pressure on the national currency, Governor Godwin Emefiele said.

The move will end the central bank’s supply of $ 5.72 billion per year to the West African nation’s exchange bureaus – a key source of foreign exchange for Nigerians traveling abroad and local businesses. The central bank will also stop issuing new licenses to currency trading firms, the number of which has more than doubled to nearly 5,500 in the past five years, Emefiele said at a briefing in the capital on Tuesday. Abuja.

The measure may lead to an initial depreciation in the value of the naira because the sudden withdrawal of the central bank’s supply causes the price of the dollar to rise.

“Dollar hoarding is expected to accompany and exacerbate the market’s gut reaction, as participants brace for a tighter forex market,” Lagos-based investment bank Comercio Partners Ltd. said. in a note sent by email.

The central bank took the plunge because some exchange offices have become “greedy” in pursuit of higher profits and their demand for foreign currency puts pressure on the country’s naira and reserves, Emefiele said. The central bank will now only provide dollars through commercial lenders, he said.

“We have noted with disappointment and grave concern that our bureau de change operators have abandoned the original goal of their establishment, which was to serve retail users who need $ 5,000 or less,” Emefiele said. “Instead, they have become wholesalers” who negotiate millions of dollars per transaction, he said.

Three devaluations

The move is the latest move by Emefiele to prop up the naira, which the central bank has devalued three times since March 2020 as falling oil revenues eroded the country’s reserves.

Nigeria previously banned foreign exchange sales to silver traders in March 2020, to prevent people from congregating at exchange offices at the start of the coronavirus pandemic. Previously, it had suspended supply in 2016, when Africa’s largest oil producer faced declining foreign exchange earnings due to falling crude prices.

The move will allow the bank to shut down companies that have exploited the market by buying dollars from the central bank at 390 naira and then selling them back at 500, said Bismarck Rewane, managing director of Financial Derivatives Co. in Lagos.

“This will give the central bank enough time to clean up the currency exchange office space, leaving only credible institutions,” he said.

Aminu Gwadabe, president of the Association of Bureau de Change Operators of Nigeria, said he was meeting with other industry representatives and could not immediately comment when contacted on Tuesday.

Emefiele also announced plans to introduce a digital currency, known as e-naira, by October. It will complement the existing types of currency and not replace it. The launch of the e-naira will result in the conversion of some balances of the country’s lenders into digital currency, he said.



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