The Central Bank of Nigeria (CBN) decision to allow licensed Bureau De Change (BDC) operators to participate in the Nigerian Foreign Exchange Market (NFEM) has delivered immediate gains for the naira and narrowed the gap between official and parallel market rates.
Last week, the apex bank issued a circular to all Authorised Dealer Banks and the general public on the participation of licensed BDCs in the Nigerian Foreign Exchange Market. The move is aimed at improving dollar liquidity in the retail segment of the market and curbing sustained pressure in the parallel market.
Since the issuance of the circular, the previously widening foreign exchange gap between the official and parallel markets has narrowed significantly, even before BDCs have fully accessed dollar supply. The exchange rate spread, which widened to N92 as of Wednesday last week, closed to N33 by Monday. The earlier divergence, which exceeded N90, marked the widest spread since President Bola Tinubu liberalised the currency in 2023.
The naira on Monday climbed to a two-year high of N1,347.78 per dollar in the official foreign exchange (FX) market, further narrowing the spread with the black market, as Bureau De Change operators await trading guidelines from the Central Bank of Nigeria this week.
Data published by the apex bank showed that the naira appreciated by N7.64, with the dollar quoted at N1,347.78, representing a gain of 0.57 percent compared to N1,355.42 recorded on Friday at the Nigerian Foreign Exchange Market.
In the parallel market, also known as the black market, the local currency strengthened sharply on Monday to close at N1,380 per dollar after opening at N1,390 per dollar earlier in the day. The appreciation further narrowed the gap between the parallel market and the official FX window by 2.4 percent. The naira gained N40 per dollar to close at N1,380, reflecting a 2.89 percent improvement from N1,420 recorded on Friday in the black market.
By permitting each BDC to purchase up to $150,000 weekly, the apex bank has taken a significant step to strengthen FX liquidity and stabilize the naira, supporting businesses and retail end users with genuine foreign exchange needs. Stakeholders view the move as aligned with the CBN’s long-term strategy to make FX accessible and transparent across all levels of the market.
The BDC segment plays a central role in providing dollars to retail customers and businesses requiring foreign currency for imports and other essential transactions. Over the years, the CBN has implemented critical reforms aimed at unifying Nigeria’s exchange rate, eliminating distortions, and restoring transparency. This unification has enabled the apex bank to clear outstanding FX obligations, giving manufacturers, airlines, and other businesses confidence to plan and invest.
A key part of the reforms involved recapitalising and licensing 82 BDC operators under a revised regulatory framework. Tier-1 operators recapitalized to N2 billion, while Tier-2 operators contributed N500 million. Exercising powers under the Banks and Other Financial Institutions Act (BOFIA) 2020 and the 2024 Regulatory and Supervisory Guidelines for Bureaux De Change Operations, the CBN granted final licenses to these operators, allowing them access to $150,000 weekly from the apex bank. The CBN also emphasised that it will continually update the list of licensed BDCs for public verification.
In a circular signed by Musa Nakorji, director of the Trade and Exchange Department, the apex bank highlighted that the FX injection would improve liquidity in the retail segment and meet the legitimate needs of end users. “To ensure the availability of adequate foreign exchange liquidity in the retail segment of the foreign exchange market to meet the legitimate needs of end users, all duly licensed BDCs are allowed to access foreign exchange from the NFEM through any Authorised Dealer at the prevailing exchange rate,” the circular stated.
The circular also mandated full Know-Your-Customer (KYC) and due diligence procedures for BDC clients before FX is sold to them. Foreign exchange must be utilized according to existing operational rules and is capped at $150,000 weekly per BDC. BDCs must submit accurate electronic returns to the CBN in a timely manner, and any unutilised funds must be returned to the market within 24 hours to prevent hoarding or speculative positions.
To further strengthen compliance and traceability, all transactions must pass through settlement accounts with licensed financial institutions. Third-party transactions are prohibited, and cash settlement is capped at 25 percent of any transaction. Existing BDC guidelines continue to apply, reflecting a hybrid approach of wider market access and strict regulatory oversight.
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Recapitalisation and New Guidelines
The new framework requires Tier-1 BDCs to operate nationally, while Tier-2 operators are restricted to one state or the Federal Capital Territory. Tier-1 BDCs may establish branches and franchisees across the country, subject to CBN approval and maintaining a minimum distance of one kilometre between outlets. Tier-2 operators may establish up to five branches within a single state but cannot appoint franchisees.
The guidelines also prevent ownership of BDC licenses by commercial, merchant, non-interest, and payment service banks, financial holding companies, International Money Transfer Operators, and other financial institutions, including employees of regulatory agencies.
On FX sales, BDCs are capped at a 1 percent spread above their acquisition rate, incentivizing efficiency without inflating end-user costs. CBN Governor Olayemi Cardoso’s team has emphasised that post-2023 reforms unifying exchange rates and dismantling naira arbitrage have stabilised reserves and curtailed capital flight. The BDC circular embeds retail access within a compliant framework, moving away from the opaque practices of the past where BDCs were accused of siphoning subsidized dollars.
A key innovation in the new framework is that no more than 25 percent of any BDC transaction may be settled in cash, while the remainder must be conducted through debit or prepaid cards issued by licensed institutions. This hybrid model mitigates informal dollar circulation risks and ensures a traceable electronic footprint for every transaction.
FX Liquidity and Naira Stability
The naira has shown modest but notable recovery, appreciating to N1,347.780 per dollar in the official market and N1,380 per dollar in the parallel market. Bismark Rewane, managing director/CEO of Financial Derivatives Company Limited, noted that the gap between official and parallel rates reflects underlying market frictions, including supply-demand imbalances and uneven FX access for smaller end users who frequently turn to the parallel market.
Mathew Verghis, Country director of the World Bank in Nigeria, emphasised that the key issue is not the exchange rate per se, but the divergence between official and parallel market rates. Speaking at the Agusto & Co. 2026 Economic Roundtable in Lagos, he noted that reducing this gap represents positive feedback for the FX market.
Rewane explained that by increasing dollar availability to retail FX intermediaries, the CBN aims to ease pressures for legitimate end users. He estimated the fair value of the naira at approximately N1,257 per US dollar, suggesting the currency remains undervalued by about 11 percent based on the purchasing power parity model. According to PPP estimates, the naira is expected to converge toward N1,256.79 over a five-year horizon.
Aminu Gwadabe, president of the Association of Bureaux De Change Operators of Nigeria (ABCON), said the naira has remained stable across markets for several months, ending years of volatility. He added that injecting more liquidity through BDCs will create a sustainable pathway for naira stability and support continued FX market development.
FX Reforms and Broader Market Impact
Under Cardoso, the CBN has cultivated multiple FX sources to increase inflows, including improving diaspora remittances, granting licenses to new International Money Transfer Operators (IMTOs), implementing a willing buyer-willing seller FX model, and enabling timely access to naira liquidity for IMTOs. These measures have strengthened gross FX reserves and contributed to naira stability.
Diaspora remittances to Nigeria, estimated at $23 billion annually, remain a reliable forex source, and the CBN continues to explore other channels to sustain dollar inflows. These initiatives align with the apex bank’s objective of doubling formal remittance receipts within a year, ensuring adequate liquidity, and supporting monetary and fiscal policy stability.
By integrating BDCs into the official FX market under strict oversight, the CBN is not only boosting liquidity but also reinforcing transparency, accountability, and long-term stability for the naira and the broader financial system.
