BDC Operators Blame Naira Crash On High Forex Demand From Govt Contractual Payments

Speaking in an exclusive interview with Naijaonpoint, ABCON President Aminu Gwadebe admitted that the forex market is currently experiencing unprecedented volatility, despite the naira’s recent strong performance. The local currency, which had traded at around N1,500/$1, saw a rapid decline, losing over N70 per dollar in a short period, with rates dropping to N1,575/$1.

Gwadebe described the sudden depreciation as a “fictitious, discretionary shock”, emphasizing that such fluctuations are often fueled by speculation and emotional trading. He urged regulators, particularly the Central Bank of Nigeria (CBN), to maintain policy consistency in the forex market to prevent manipulation and speculative activities.

“There was a shock yesterday (Friday) as the market witnessed an unprecedented attack on the naira. The stability and appreciation of the naira regressed sharply with over N70/$1 loss in a short time,” Gwadebe stated.

“Our findings revealed that a lot of the demand came from the windfall of some contractual payments and financial releases. This underscores the need for consistency in regulatory reforms in such a volatile forex market.”

Gwadebe urged the CBN to closely monitor forex supplies at the retail end and curb speculative trading, currency hoarding, and naira-to-dollar substitution.

To stabilize the naira, the ABCON boss called on the CBN to reconsider allowing Bureau De Change (BDC) operators access to a portion of foreign exchange inflows from International Money Transfer Operators (IMTOs).

“The CBN should revisit its prudential percentage targeting, ensuring that a fraction of IMTO proceeds received by banks and fintechs is allocated to the BDC window,” Gwadebe stated.

He also urged fiscal authorities to modify the mode of contractual payments by adopting financial instruments instead of direct cash disbursements, which he said fuels speculative forex demand.

The naira has seen renewed pressure in the past week, depreciating against the US dollar in both the official and parallel markets.

At the close of last week:

Currency speculators, who had been on edge due to the naira’s earlier recovery, have resumed market activities, taking advantage of price fluctuations.

To address volatility, the CBN has implemented several measures, including the launch of the Nigerian Foreign Exchange Market Conduct Code on January 28, aimed at promoting transparency, accountability, and ethical trading in the forex market.