By Chinwendu Obienyi
Amid the scarcity of FX, Nigeria’s foreign exchange supply through the Central Bank of Nigeria (CBN) official window increased to $15.3 billion in 2022.
Available data from the CBN, said this represents a 17.7 per cent increase from the $12.9 billion recorded in 2021 and a 46.4 per cent increase from the $10.4 billion posted in 2020.
The official window of the CBN comprises of the Wholesale Dutch Auction System (WDAS)/Retail Dutch Auction System (RDAS), the Inter-bank market, the Bureau De Change (BDC) market and the Investors and Exporters (I&E) window, as well as the Small and Medium Enterprises (SME) and Invisibles segments.
The I&E window is a segment of the official window where authorised dealers and buyers trade forex at market-determined rates and was introduced by the CBN in April 2017 to boost liquidity and transparency in the forex market. It allows foreign investors and exporters to buy and sell forex at market-determined rates.
The I&E window recorded a $15.3 billion supply, accounting for 100 per cent of the total forex supply through the official window, representing a 5.6 per cent increase from the $14.5 billion recorded in 2021 and a 54.8 per cent increase from the $9.9 billion recorded in 2020.
Meanwhile, the WDAS/RDAS recorded zero supply after the CBN suspended this segment in February 2015, the Inter-bank market recorded zero supply, as the CBN merged this segment with the I&E window in August 2017 while the BDC market recorded zero supply, as the CBN stopped selling forex to BDC operators in July 2021, citing abuse and illegal activities.
One of the factors that contributed to the depreciation of the naira in 2022 was the lack of forex supply from the BDC market. The BDC market is a segment of the official window where licensed operators buy and sell forex to retail customers at a margin.
The BDC market usually provides liquidity and stability to the forex market, as well as a source of income for many Nigerians. However, in July 2021, the CBN stopped selling forex to BDC operators, accusing them of engaging in illegal activities such as hoarding, speculation, and money laundering.
The CBN also claimed that BDC operators were charging exorbitant rates and exploiting customers. As a result, the BDC market recorded zero supply in 2022, leaving the I&E window as the only source of forex supply through the official window. This in turn, created a shortage of forex and put pressure on the naira, which depreciated by 9.4 per cent against the dollar in 2022.
Reacting to the development, analysts pointed out the factors which led to increase in FX was the improvement in crude oil prices and production which boosted Nigeria’s external reserves and export earnings, introduction of the Naira for Dollar scheme by the CBN, incentivised remittance inflows from Nigerians in the diaspora and the reopening of international borders and airports facilitated trade and tourism activities.