CBN Gives Reasons as Nigerians Reduce Demand for Dollar, Others
- The decline in demand for forex in the third quarter of 2024 was caused by a drop in invisible transactions
- School fees, student maintenance allowances, medical expenses, and others are examples of invisible transactions
- According to experts, the banking sector's usage of foreign exchange was the main reason for the significant QoQ decline
Legit.ng journalist Zainab Iwayemi has 5-year-experience covering the Economy, Technology, and Capital Market.
In the third quarter of 2024, a notable decrease in invisible transactions caused a decline in demand for foreign exchange.
Source: UGC
This was mentioned in the Central Bank of Nigeria's most recent Quarterly Statistical Bulletin, which was posted online.
Examples of invisible transactions include medical costs, school fees, student maintenance allowances, and other eligible non-physical transactions.
According to CBN data, the total amount of foreign exchange used by the economy's sectors decreased by 11% on a quarterly basis to $5.7 billion in Q3 2024. On the other hand, the overall sectoral use of foreign exchange rose by 72% year over year.
The little decline in Q3 was attributed to a 32% quarter-over-quarter decline in FX usage for invisible transactions, which fell to $2.2 billion.
Consequently, its proportion of overall foreign exchange usage dropped to 39% from 51% in the second quarter of 2024.
What experts say
Experts at FBNQuest, who analyzed the information, concluded that the primary cause of the notable QoQ fall was the financial sector's use of foreign exchange, which normally accounts for the majority of FX usage in the invisible segment.
“FX utilised for financial services fell by 34 per cent QoQ to almost $2.0bn,” the report read.
Additionally, the amount of foreign exchange used for merchandise imports rose by 10% on a quarter-over-quarter basis to around $3.5 billion, increasing its share of total foreign exchange used to 61% from 49% in the previous quarter.
The industrial sector was the largest consumer of foreign exchange in this category, accounting for 53% of all merchandise items through the use of foreign exchange for imported machinery, equipment, and raw materials.
With a 16% quarter-over-quarter growth to $633.6 million, food products became the second-largest category in the merchandise goods segment.
According to FBNQuest, starting Q1 2023, the trend in sectoral FX usage has mainly decreased.
“This pattern can be primarily attributed to decreased demand for FX following the significant devaluation of the naira. Looking ahead, we anticipate a modest improvement in FX utilisation by various economic sectors due to increased FX liquidity and improved access to foreign currency resulting from the CBN’s ongoing measures to streamline FX trading and facilitate transparency in the FX market,” the report concluded.
To improve foreign exchange liquidity, the CBN has implemented a number of changes since the naira's depreciation.
CBN Sets Transaction Limit for BDCs
Legit.ng reported that the Central Bank of Nigeria (CBN) has imposed a transaction limit on Bureau de Change (BDC) operators, capping single foreign exchange cash sales at $5,000.
The apex bank stated this is part of the CBN’s Monetary, credit, foreign trade, and exchange policy guidelines for the fiscal years 2024/2025.
The guideline aims at promoting stability and compliance within the foreign exchange market.
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Source: Legit.ng
