By Babajide Komolafe

In a move to close the gap between the official foreign exchange rate and the parallel market exchange rate, the Central Bank of Nigeria (CBN) last week raised by 100 per cent the limit banks’ sale of autonomous foreign exchange to bureaux de change (BDCs). Consequently, each bank can now sell foreign exchange up to N1 million to BDCs per week.

This was communicated to banks and BDCs via a circular signed by Director, Trade Exchange Department, Alhaji Batari Musa. The circular said, “ In a bid to sustain and ensure exchange rate stability in the Foreign Exchange Market, Authorised Dealers (ADs) are hereby informed that a maximum of $USD 1 million (One million United States Dollars only) has been approved for each AD to sell to Bureaux De Change Operators per week from autonomous funds.

Furthermore, each BDC is restricted to purchase foreign exchange from only one Authorised Dealer per week. Authorised Dealers and BDC operators are, therefore, enjoined to ensure compliance and render appropriate returns on the transactions, as any contravention shall attract appropriate sanctions in line with the relevant provisions of Banks and Other Financial Institutions Act (BOFIA) as amended”.

This is the second time the CBN is raising the limit on banks’ sale of autonomous foreign exchange to BDCs since the limit was introduced on June 24th. The limit was first increased to $500,000 per bank per week on July 28th from $250,000 in June.

The increase must have been prompted by the need to close the wide gap between the official exchange rate and the parallel market rate, which stood at N14.25 as at last week from N2.19 when the limit was introduced in June, and the concomitant boom in foreign exchange round-tripping.

“The parallel market exchange rate will decline if people can get autonomous to buy from the banks”, said Harrison Owoh in reaction to the increased limit. The Chief Executive of H.J Trust BDC said that the increased limit would likely lead to narrowing of the gap between the official and parallel market exchange rate.

Meanwhile, demand for foreign exchange at the official market rose by 8.5 per cent last week while the amount offered and sold by the apex bank rose by 7.7 per cent.

Results of the bi-weekly Wholesale Dutch Auction System (WDAS) show that demand rose to $822.1 million from $757.6 million. CBN increased supply to $700 million from $650 million.

Despite the inadequate supply, the naira appreciated by two kobo as the official exchange rate dropped marginally to N150.75 per dollar from N150.77 the previous week. But the naira depreciated by 20 kobo at the interbank exchange rate closed at N153.6 per dollar from N153.4 the previous week.