By Okafor Joseph Afam | February 6, 2025

The gap between Nigeria’s official foreign exchange (FX) rate and the parallel market is narrowing, driven by policies implemented by the Central Bank of Nigeria (CBN).

On Wednesday, the naira strengthened to N1,585 per dollar, breaking the N1,600 psychological barrier in the parallel market. Meanwhile, the official exchange rate remained stable at N1,499.76 per dollar, slightly up from N1,498.95 on Tuesday, according to data from FMDQ Securities Exchange Limited.

This reduced the FX spread between the official and black market to N85.24 per dollar. Compared to the previous month, the naira has appreciated by 5%, gaining N80 from N1,665 at the start of the year in the parallel market.

Market Performance and CBN Policies

The local currency has shown resilience, closing at N1,600 per dollar on Tuesday in the parallel market, nearly unchanged from N1,599.33 on Monday. In the official market, it steadied at N1,499 per dollar, as reported by the Nigerian Foreign Exchange Market (NFEM).

Currency traders credit the improved dollar supply and reduced demand for the greenback to CBN’s new FX policies.

CBN Governor Olayemi Cardoso, in his Monetary Policy Committee (MPC) statement, attributed the naira’s stability to bold monetary tightening measures implemented since the beginning of the year. He noted that increased capital flows and reduced exchange rate disparities were key outcomes of these reforms.

Aloysius Uche Ordu, an MPC member, observed that the exchange rate had remained relatively stable since the second half of 2024 due to higher capital inflows driven by attractive investment yields.

Foreign Reserves and Economic Outlook

Although Nigeria’s external reserves declined to $39.55 billion as of February 4, 2025, another MPC member, Bala Moh’d Bello, pointed out that reserves had grown significantly from $40.06 billion at the end of October 2024 to $40.88 billion in November 2024. This increase strengthens Nigeria’s ability to mitigate unforeseen risks and supports sustained FX stability.

With these growing reserves and a relatively stable exchange rate, Nigeria is becoming a more attractive destination for foreign investment.

Bandele A.G. Amoo, another MPC member, disclosed that total foreign exchange inflows surged to $6.175 billion in September 2024, up from $2.57 billion in August 2024.

Furthermore, external reserves at the end of October 2024 stood at $39.68 billion, equivalent to several months of import cover. Amoo projected further increases by year-end due to reduced import demand, full deregulation of the oil sector, and improved FX inflows.

CBN’s New FX Regulations for BDCs

The CBN has introduced strict guidelines for Bureau de Change (BDC) operators to ensure FX stability:

• BDCs must sell foreign exchange to end-users at a maximum margin of 1% above the buying rate.
• Daily transaction records must be reported via the Financial Institutions Forex Reporting System (FIFX).
• FX funds purchased by BDCs can only be used for eligible transactions, including Business Travel Allowance (BTA), Personal Travel Allowance (PTA), overseas tuition, and medical fees, with a maximum disbursement of $5,000 per quarter.
• Every transaction must be documented with the customer’s BVN and passport endorsement for compliance.

The CBN also warned that any BDC or authorised dealer found violating these regulations or diverting funds would face severe penalties, including license suspension.

Under the new rules:

• Authorised dealers can sell up to $25,000 per week to a single BDC.
• Each BDC must source foreign exchange from only one authorised dealer bank per week, with strict penalties for non-compliance.

Conclusion

With the naira’s steady appreciation, rising FX reserves, and CBN’s regulatory interventions, Nigeria’s forex market is experiencing increased stability. Analysts anticipate further improvements if dollar inflows remain strong and FX policies continue to be effectively implemented.