In Nigeria, the people who sell and exchange money, called Bureau De Change (BDC) operators, say that the value of the Naira has gone down because there is less foreign money available. This is happening because places where they usually get foreign money are now giving out less.
Aminu Gwadabe, who leads the group of these money exchangers, explained that they are facing this problem because of new rules from the Central Bank of Nigeria (CBN). He said they no longer get enough foreign money from places like exports or money sent home by Nigerians living abroad. Now, they mostly depend on the Central Bank for money, but this help is not given regularly.
Mr. Gwadabe mentioned that the main issue for BDCs is from companies that help transfer money internationally, known as International Money Transfer Operators (IMTOs).
He said, “When the market rules changed, it stopped the flow of money supply, making things hard for us. These IMTOs now control where most of the money coming from other countries goes.”
“Another way we used to get foreign money, through selling things other than oil overseas, has also decreased. Plus, the Central Bank doesn’t help us often like before. We used to exchange up to $40,000 each week, but now it’s only $20,000.”
Need for Central Bank’s Support for BDCs
He warns that until the Central Bank steps in regularly to help, the Naira will keep losing value in the parallel market. The BDCs play a crucial role for many small players in the money market, and any worry about not having enough money affects the worth of the Naira.
By the end of September, the Naira dropped to its lowest value in seven months in the informal market, but it slightly improved at the start of October. At the same time, the official market saw a big drop in the Naira’s value, about 8%.
Over the past year, the Central Bank tried to change how IMTOs work to help bring more foreign money into official channels. In 2023, Nigeria got about $19.5 billion from such remittances, which makes up about 35% of all the money sent to Africa from abroad, according to the World Bank.
But Taiwo Oyedele, head of the group working on government financial policies, explained that only a small part of these billions made it to the official forex market. Almost 90% went to the informal market instead.
CBN’s Steps to Improve Money Transfers
Seeing this, the Central Bank started making changes. In January, they removed a rule about exchange rates that limited changes in daily money transactions. This was a big step towards freeing up how foreign money is exchanged in Nigeria.
By the end of January, the bank changed the rules for how IMTOs operate. They increased the fee to apply for an IMTO license from N500,000 in 2014 to N10 million today. They also said these operators need more money to start, setting the amount at $1 million.
Because of these changes and approval for 14 new IMTOs, more money came in this year. At a recent meeting, the Central Bank’s Governor, Yemi Cardoso, shared that remittances via IMTOs rose by 130%, reaching $585 million in August 2024.
In the first part of 2024, money sent home reached $1.07 billion, which is a 39% increase from the same time in 2023. Compared to the end of 2023, this shows an 11% rise.
Central Bank data shows that remittance inflows are rising each month, from $383 million to $585 million by August 2024.
It seems that the Central Bank’s changes for IMTOs are working because more foreign money is coming in. However, it’s still unclear how BDCs will handle these challenges since Central Bank support is not as frequent now.
Lastly, the decrease in foreign money supply to BDCs comes after the Central Bank updated their rules, forcing BDCs to have much more starting capital – raising it from N35 million to N2 billion.