Economy
CBN-BDC Scuffle: After CBN Ban, BDCs Move to P2P Forex as an Alternative Source of Forex
Over a month has passed since the Central Bank of Nigeria (CBN) stopped selling forex to Bureau De Change (BDC), leaving many wondering how these parallel market operators will continue to operate in the face of the new CBN policy.
BDC operators play an important role in Nigeria’s economy as informal financiers. This creates a strong foundation for cooperation with apex banking. The apex bank was unable to control the BDCs due to greed and the pursuit of abnormal profits. Godwin Emefiele (the Governor of CBN), ended the relationship as he addressed the media during the MPC briefing, Tuesday 27th July 2021.
He stated that in particular, they have noticed with disappointment and great concern that BDC operators had abandoned their original objective for the establishment, which was serving retail end-users who have $5,000 or less. He claimed that they have turned into wholesale dealers in illegal foreign currency, averaging millions of dollars per transaction.
Despite the fact Nigeria being the only country where a central bank sells dollars directly at the BDCs today, operators in the Nigeria BDC market have not reciprocated that gesture to maintain price stability in that segment.
This approach has hurt top Forex brokers in Nigeria multiple times, many of them even abandoning the local market and switching to international instead. Although reports have suggested that the governor may appeal to the apex bank for assistance, his resolve seems unshaken.
There are ongoing investigations on how these developments have affected the operation of BDCs. An operator of a BDC stated anonymously that BDCs can make money other than the CBN sale. He stated that BDCs were not closing down shops.
He explained that funds inflow refers to money that comes from outside Nigeria, mainly from the UK and other European countries and they can receive a large amount of money due to the account BDCs use.
They normally assist customers in accepting these inflows from overseas and facilitate outflows to countries such as China. There are limitations on how much money one can deposit or send to their domiciliary accounts.
“However, BDC operators have relationships with parties around the world that can facilitate smooth and seamless payment.” He said that there was no way for him to source foreign currency in Nigeria right now.
Abbas, another BDC operator, stated that it is important to be creative in dealing with difficult situations in Nigerian businesses and BDCs are no exception.
He joked that those who cannot keep up with the pace of business would need to shut down. Nigeria is only for the strong players, he says. BDC operators that cannot overcome challenges will have to close their doors.
“It’s not easy to get dollars but for the moment, most of my colleagues and I have discovered that dealing directly with customers has proven more profitable than dealing with licensees.”
He said that he only uses customers with proper documentation like passports and travel documents to get the maximum amount of personal or business travel allowances (PTAs) from banks. Because of the large number of people who are interested in travelling out of the country, this is a significant source of forex supply for BDC operators.
This avenue has been very profitable as it has allowed them to purchase dollars at a lower price and then sell them at black-market rates, while still making significant profits. While this method is not sustainable, he believes that there will be more creative channels soon.
Ango, a BDC operator, also confirmed that BDC operators work in partnership with individuals to obtain FX from banks.
“If someone wishes to take a personal travel allowance, they will need to show us their documentation. We would then fund his account to receive the maximum amount from the bank. Everyone gets a cut so the transaction runs smoothly. The licenses are ineffective at the moment because the CBN has stopped giving us dollars,” he said.
BDC operators are now more dependent on peer-to-peer transactions to fund their dollar supplies in the face of the CBN dollar sales ban. People with strong networks of buyers or sellers attract more business, while those who don’t have such strong networks are less likely to be successful in attracting volume.
However, exchange rates continue to be transacted at black market rates that are higher than those preferred by the central banks.
BDCs’ reactions to the ban by the apex bank raise questions about the effectiveness of Nigerian monetary policy. Can they sideline a major player in the foreign currency space and directly deal with banks? In this case, the end should justify the means. However, there have been very few results as the naira is still extremely weak against the dollar.
The rate at the parallel market was N530 per dollar at the time this article was written. This indicates that black-market forex is still in high demand.
By Adedapo Adesanya
The United Arab Emirates has announced its decision to quit the Organisation of the Petroleum Exporting Countries (OPEC) to focus on national interests.
This dealt a heavy blow to the oil-exporting group at a time when the US-Israel war on Iran had caused a historic energy shock and rattled the global economy.
The move, which will take effect on May 1, 2026, reflects “the UAE’s long-term strategic and economic vision and evolving energy profile”, a statement carried by state media said on Tuesday.
“During our time in the organisation, we made significant contributions and even greater sacrifices for the benefit of all,” it added. “However, the time has come to focus our efforts on what our national interest dictates.”
The loss of the UAE, a longstanding OPEC member, could create disarray and weaken the oil cartel, which has usually sought to show a united front despite internal disagreements over a range of issues from geopolitics to production quotas.
UAE Energy Minister Suhail Mohamed al-Mazrouei said the decision was taken after a careful look at the regional power’s energy strategies.
“This is a policy decision. It has been done after a careful look at current and future policies related to the level of production,” the minister said.
OPEC’s Gulf producers have already been struggling to ship exports through the Strait of Hormuz, a narrow chokepoint between Iran and Oman through which a fifth of the world’s crude oil and liquefied natural gas supplies normally pass, because of threats and attacks against vessels during the war.
The UAE had been a member of OPEC first through its emirate of Abu Dhabi in 1967 and later when it became its own country in 1971.
The oil cartel, based in Vienna, has seen some of its market power wane as the US has increased its production of crude oil in recent years.
Additionally, the UAE and Saudi Arabia have increasingly competed over economic issues and regional politics, particularly in the Red Sea area.
The two countries had joined a coalition to fight against Yemen’s Iran-backed Houthis in 2015. However, that coalition broke down into recriminations in late December when Saudi Arabia bombed what it described as a weapons shipment bound for Yemeni separatists backed by the UAE.
By Adedapo Adesanya
Central Securities Clearing System (CSCS) Plc bested four price decliners on the NASD Over-the-Counter (OTC) Securities Exchange on Monday, April 27. The alternative stock market opened the week bullish during the session with a 0.03 per cent uptick.
According to data, the security depository company added N2.61 to its share price to close at N76.26 per unit compared with the preceding session’s N78.87 per unit.
As a result, the market capitalisation of the platform increased by N820 million to N2.425 trillion from N2.424 trillion, and the NASD Unlisted Security Index (NSI) gained 1.38 points to finish at 4,053.97 points compared with the 4,052.58 points it ended last Friday.
The four price losers were led by NASD Plc, which slumped by N3.80 to sell at N34.70 per share versus N38.50 per share. FrieslandCampina Wamco Nigeria Plc fell by N1.45 to N98.10 per unit from N99.55 per unit, Food Concepts Plc slid by 27 Kobo to N2.43 per share from N2.70 per share, and Geo-Fluids Plc dipped by 9 Kobo to N2.91 per unit from N3.00 per unit.
The value of securities transacted by market participants went down by 82.0 per cent to N7.4 million from N41.3 million units, the volume of securities declined by 28.5 per cent to 319,831 units from 447,403 units, and the number of deals dropped by 34.1 per cent to 29 deals from 44 deals.
Great Nigeria Insurance (GNI) Plc was the most active stock by value on a year-to-date basis with 3.4 billion units worth N8.4 billion, followed by CSCS Plc with 59.6 million units sold for N4.0 billion, and Okitipupa Plc with 27.8 million units exchanged for N1.9 billion.
Also, GNI Plc was the most traded stock by volume on a year-to-date basis with 3.4 billion units valued at N8.4 billion, followed by Resourcery Plc with 1.1 billion units traded for N415.7 million, and Infrastructure Guarantee Credit Plc with a turnover of 400 million units worth N1.2 billion.
By Adedapo Adesanya
The first trading day of the week in the currency market was bearish for the Naira in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Monday, April 27.
Yesterday, it lost N5.80 or 0.43 per cent against the United States Dollar to trade at N1,364.24/$1, in contrast to the N1,358.44/$1 it was traded last Friday.
In the same vein, the Nigerian currency depreciated against the Pound Sterling in the official market by N13.70 to close at N1,847.72/£1 versus the preceding session’s N1,834.02/£1, and slumped against the Euro by N11.56 to sell at N1,602.29/€1 versus N1,590.73/€1.
Also, the Nigerian Naira tumbled against the greenback during the trading day by N5 to quote at N1,385/$1 compared with the previous rate of N1,380/$1, and at the GTBank FX desk, it traded flat at N1,370/$1.
The poor performance of the domestic currency could be attributed to liquidity shortage at the official currency market on Monday, which came amid surging demand for international payments. At $76.50 million, interbank liquidity printed higher across 79 deals, up from the $43.572 million reported on Friday.
Nigeria’s gross external reserves declined to $48.45 billion amid a month-long decline in inflows, amid uncertainties in the global commodity market. The depletion of foreign reserves could be partly attributed to the Central Bank of Nigeria’s intervention in the FX market.
The market remains perturbed by persistent concerns over liquidity constraints, policy transparency, and weakening confidence in Nigeria’s FX market, while boosters, including oil prices, continue to look rocky due to stalled discussions and unclear ceasefire negotiations between the US and Iran.
A look at the cryptocurrency market, Bitcoin (BTC) has been rejected near $79,000 three times in eight sessions, leaving the level as the de facto ceiling of its current trading range even as major cryptocurrencies trade lower over the past day. It lost 0.9 per cent to sell at $77,003.61.
Analysts say that upcoming US Federal Reserve policy decisions and top tech firms’ earnings this week could provide the catalyst to push bitcoin decisively above $80,000.
The market also continued to weigh Iran’s interim deal proposal to reopen the Strait of Hormuz, which failed to advance over the weekend. The White House said US officials were discussing the latest Iranian proposal but maintained “red lines” on any deal to end the eight-week war.
Solana (SOL) dropped 1.8 per cent to $84.25, Ripple (XRP) went down by 1.6 per cent to $1.39, Ethereum (ETH) depreciated by 1.3 per cent to $2,290.00, Binance Coin (BNB) declined by 0.5 per cent to $625.18, and Cardano (ADA) fell by 0.2 per cent to $0.2480.
However, Dogecoin (DOGE) rose by 2.0 per cent to $0.1002, and TRON (TRX) appreciated by 0.2 per cent to $0.3242, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
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