Cardoso: Restoring the Dignity of Naira with Painstaking Reforms, by Rahma Olamide Oladosu

The Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, took the helm of affairs at a time the Naira was on a free fall. Despite his initial steps to arrest the downward trend, the national currency continued to go down against the Dollars. Cardoso and his surrogates assured Nigerians that the reforms would bring results in the medium and long term, that there would be light at the end of the tunnel.

With the gradual rise of the Naira in the last few weeks, it is obvious that Cardoso’s policies have fully matured and they are doing the magic.

The CBN had to introduce a couple of sweeping reforms aimed at reshaping the Bureau De Change (BDC) sector. With new capital requirements, stricter operational guidelines, and limitations on cash transactions, the CBN is sending a clear message: the forex market is no longer an all-comers’ affair.

For years, the BDC sector played a crucial role in Nigeria’s foreign exchange ecosystem, providing liquidity and accessibility to individuals and businesses. However, the rapid proliferation of BDC operators—over 5,000 in total—has contributed to market distortions, arbitrage opportunities, and speculation, exacerbating the depreciation of the Naira. The CBN’s latest reforms were designed to clean up the sector, ensuring that only serious, well-capitalised entities remain in operation.

At the heart of these reforms is the introduction of a two-tier licensing system for BDC operators. The first category, Tier 1 BDCs, allows operators to function on a national scale, establish branches, and appoint franchisees, provided they receive CBN approval. To ensure only financially sound entities participate, the minimum share capital for this tier is set at ₦2 billion, with a mandatory caution deposit of ₦200 million. Additionally, applicants must pay ₦1 million for application processing and ₦5 million for licensing.

On the other hand, Tier 2 BDCs are restricted to a single state or the Federal Capital Territory (FCT), with a maximum of three locations, including a head office and two branches. The financial threshold for this tier is lower but still substantial, requiring a minimum share capital of ₦500 million and a caution deposit of ₦50 million. The application and licensing fees are ₦250,000 and ₦2 million, respectively.

The purpose of this tiered structure is to streamline the sector and eliminate operators who lack the financial strength or infrastructure to contribute meaningfully to the forex market. By setting these high capital requirements, the CBN aims to foster professionalism, eliminate rent-seekers who engage in speculative trading, and ensure that BDCs serve their primary function which is providing foreign exchange to retail end-users rather than acting as intermediaries for larger, unauthorised transactions.

Beyond the licensing reforms, another major policy shift is the limitation on cash transactions for buying and selling foreign currencies. The CBN recently announced that BDCs will be restricted to handling a maximum of $500 in cash per transaction. Any transaction exceeding this limit must be conducted digitally. For example, payments for foreign currency purchases above $500 must be made through bank transfers to the customer’s Naira account. Non-resident customers will receive prepaid Naira cards, which they can use for transactions while in Nigeria.

This policy aims to reduce the circulation of physical cash in forex transactions, making it easier to track and regulate money flows. By pushing forex transactions into the digital space, the CBN is taking a step toward curbing illicit financial activities such as money laundering, round-tripping, and capital flight. The reform also aligns with Nigeria’s broader cashless policy, which seeks to modernise the country’s financial system and reduce reliance on physical currency.

Governor Cardoso has defended these policies by emphasising the need for a structured and professional forex market. According to him, the BDC sector should not be a free-for-all environment where anyone can set up shop and trade currency with minimal oversight. The CBN’s goal is to establish a system where only financially capable and well-managed institutions can operate, thereby reducing forex speculation and stabilising the Naira.

Despite the CBN’s justifications, the new policies have sparked debate, particularly among stakeholders in the forex market. The Association of Bureau De Change Operators of Nigeria (ABCON) has voiced concerns over the sharp increase in capital requirements, arguing that it could push many operators out of business. ABCON President Aminu Gwadabe has stated that BDC operations are not capital-intensive since they do not accept deposits or provide loans but merely facilitate currency exchanges. He believes that industry consolidation, rather than recapitalisation, would be a better approach to improving efficiency in the sector.

Other analysts have pointed out that the new regulations may have unintended consequences, such as reducing access to forex for retail users. If too many BDCs exit the market due to high capital requirements, there could be a supply shortage, pushing more transactions into the black market. A reduced number of BDCs could also lead to increased transaction costs for individuals and businesses seeking foreign exchange.

However, the CBN has argued that these short-term challenges will be outweighed by long-term benefits. Historically, the Nigerian forex market has been plagued by speculative activities, with BDCs often accused of manipulating rates for profit. By introducing stricter regulations and limiting the number of operators, the CBN hopes to create a more stable forex environment that benefits the economy at large.

This is not the first time the CBN has attempted to regulate BDC operations. In 2016, the bank implemented a policy capping forex sales to BDCs at $30,000 per week, requiring them to buy forex from a single designated bank. This measure was intended to limit forex supply to the parallel market and reduce speculative trading. However, it had limited success, as many operators found ways to beat the restrictions.

The difference this time is that the CBN is taking a more comprehensive approach. By combining capital requirements, transaction limits, and digital payment mandates, the bank aims to tackle the root causes of forex instability rather than merely treating the symptoms.

One potential outcome of these reforms is increased reliance on banks for forex transactions. With fewer BDCs in operation, individuals and businesses may turn to commercial banks for their forex needs. This could encourage banks to expand their forex services and offer more competitive rates. However, banks have traditionally been slow to meet retail forex demand, and there are concerns about whether they can efficiently fill the gap left by exiting BDCs.

Another key consideration is the impact of these policies on the black market. If the formal forex market becomes too restrictive, more individuals and businesses may resort to informal channels, where exchange rates are often less favorable. To prevent this, the CBN must ensure that the new system is efficient and that authorised BDCs can meet demand without excessive bureaucratic hurdles.

The success of these reforms will largely depend on implementation and enforcement. The CBN must ensure that digital transactions are seamlessly integrated, regulatory oversight is effective, and the transition for existing BDC operators is well-managed. If done correctly, these policies could lead to a more stable and transparent forex market, benefiting both the Naira and the Nigerian economy.

Ultimately, Governor Cardoso’s reforms signal a new era for Nigeria’s forex market, one where speculation and arbitrage are minimised, professional standards are upheld, and forex transactions are conducted transparently. While there are concerns about potential disruptions, the overarching goal is to create a forex system that works for everyone, not just a select few. As Nigeria navigates this transition, all eyes will be on the CBN to see if these bold measures continue to deliver the intended results.

Oladosu is a Senior Staff Writer with the Economic Confidential. She can be reached via [email protected]