Nigerian FX Traders Navigate EFCC Crackdown Amidst Escalating Volatility

In the wake of intensified measures by the Economic and Financial Crimes Commission (EFCC) targeting Bureau de Change (BDC) operators nationwide, Nigerian currency traders have been compelled to adopt clandestine methods to evade potential arrest. TechCabal has learned from three sources within the industry that fears of crackdowns have prompted traders to shun street trading, with over 100 currency traders in Lagos already apprehended by the EFCC last week amidst heightened FX volatility.

According to a currency trader based in Alade Market in Lagos, many BDC agents have gone into hiding since the recent arrests. Yahaya, a BDC operator in Ogba-Ikeja, disclosed that he has moved operations from the open market to his office to avoid detection.

The current predicament originates from policy moves undertaken by the Central Bank of Nigeria (CBN) in May 2023, which attempted to loosen FX regulations to achieve rate harmonisation and stability. However, these policies resulted in a significant fall in the Naira's value. In response, the government has implemented unusual policies, like as the recent crackdown on BDC operators, to improve the situation.

Insiders familiar with the CBN's operations suggest that the bank suspects market manipulations, prompting the recent crackdown. Despite initial concerns, this enforcement action has led to short-term stability, with exchange rates stabilizing around ₦1500/$1 on Monday morning, down from ₦1800/$1 quoted on Friday.

Last week, Nigerian authorities also imposed restrictions on access to crypto company websites and imposed fixed rates on Binance, a leading global crypto exchange. While the government attributes these measures to curbing speculation, experts argue that a liquidity deficit lies at the core of the issue.

An insider at the CBN disclosed to TechCabal that without systemic changes to address liquidity challenges, any market adjustments, no matter how positive, will be short-lived. Nevertheless, there is optimism regarding the CBN's proposed strategies for a sustainable solution, which may include providing funding to BDC operators with robust transaction records, increasing interest rates to attract foreign investment, and reducing the demand for the dollar.

These developments correspond with claims that the CBN has established task groups in partnership with the National Security Adviser, utilising the police force and the EFCC to identify and apprehend speculators participating in activities that are damaging to the Naira's value.