Why the naira regained strength in the FX market: Insights from BDCs

Naira gains ground, trades at N1,025/$ in parallel market
Naira gains ground, trades at N1,025/$ in parallel market

The Association of Bureau De Change Operators of Nigeria (ABCON) has shed light on the reasons behind the recent resurgence of the Nigerian Naira against the US Dollar.

According to Alhaji Aminu Gwadabe, the President of ABCON, the improvement in the Naira’s exchange rate can be attributed to the strategic combination of two measures implemented by the Central Bank of Nigeria (CBN): the injection of dollar liquidity and the mopping up of Naira through interest rate hikes. Gwadabe made this statement in a press release issued in Lagos on Sunday.

He elaborated, saying, “The market dynamics and the ongoing strengthening of the Naira result from the CBN’s two-pronged approach of injecting more dollars into the system while simultaneously withdrawing Naira through the adjustment of interest rates.

This strategy is positive as it discourages speculation, hoarding, and the substitution of Naira with other currencies.”

However, Gwadabe cautioned that speculators are closely watching the sustainability of this achievement and engaging in panic selling rather than panic buying.

He called upon the CBN management to maintain transparency and take into consideration some of ABCON’s recommendations in order to ensure the stability of the Naira in the foreign exchange market.

One of the key recommendations is the active involvement of Bureau De Change operators (BDCs) in the foreign exchange market due to their essential role in catering to the needs of the retail sector.

Gwadabe emphasized, “BDCs play a vital role in the demand measures set forth by the apex bank, ensuring transaction monitoring and facilitating client utilization while contributing to corrective and moderating potentials.”

The financial expert further explained that the increase in Nigeria’s foreign reserves can be attributed to rising demand for crude oil, the country’s primary export.

This increase is driven by factors such as growing inventories in the United States and heightened tensions in the Middle East.