Connect with us

Hi, what are you looking for?

Business & Economy

Dollar sales to BDCs raises risk of profiteering in FX trade—Experts

US Currency: Wads of US bills fastened with rubber bands, close-up

Chidi Ogbuokiri

The Central Bank of Nigeria’s decision to resume the supply of dollars to Bureau de Change operators is raising the risk unscrupulous traders profiting from the country’s multiple exchange rates, according to Rand Merchant Bank.

The regulator said on Thursday that it will sell dollars from September 7 to foreign-exchange agents for the first time since March, when the country closed its air borders to stop the spread of coronavirus pandemic. Operators will pay 384 naira per dollar, and sell at 386, compared with the parallel-market rate above 470.

That means traders could obtain dollars at the lower rate from legal money changers, and sell them at a much higher rate on the black market, a process known as round-tripping. With sales capped at $10,000 per operator twice a week, the central bank’s move could supply as much as $30 million a week to the market, Rand Merchant Bank’s Johannesburg-based analysts Neville Mandimika and Daniel Kavishe wrote in a note.

“While the resumption of foreign-currency sales is a boon for the economy, which had been starved of dollar liquidity, the risk of round-tripping or arbitraging is high,” the analysts wrote.

‘Huge and Tempting’

Foreign-exchange agents, who sell currency mainly to travelers, are aware of the risk, Aminu Gwadebe, the president of the Association of Bureau De Change Operators, said by phone. A platform that captures 4,000 of the 5,000 legal dealers has been put in place to ensure that there is transparency. The regulator will also be able to monitor transactions.

“We know the disparity is huge and tempting to human beings,” Gwadebe said. “In such a situation, you cannot rule out deviations. We are going to emphasize compliance with laid-down regulations. Any breach that happens awaits heavy sanctions.”

The increased supply of dollars won’t be enough to satisfy pent-up demand in the market, meaning the disparity between the official and black-market rates will remain, said Omotola Abimbola, a Lagos-based analyst at Chapel Hill Denham.

“Even if the naira appreciates at the parallel market, there will still be a substantial difference between the rate the Central Bank is pricing the currency and the black market,” Abimbola said.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *


You May Also Like


By Bola Aina   In spite of the prevailing harsh time, which is projected not to subside soon, MultiChoice announced new rates for its...

Business & Economy

There has been a significant slash in the cost of owning luxury apartments and terraces in the Ikoyi area of Lagos, one of Africa’s...


Captain Emmanuel Iheanacho, a foremost Nigerian mariner, Shipowner, former Minister of Interior and Chairman of Integrated Oil and Gas Limited spoke with journalists in...


Chidi Ogbuokiri Worried by Federal Government’s delay in dredging the Oseakwa Seaport (Orashi River Port) in Ihiala Anambra State, a nonprofit organisation, New Era...