As controversy over forex ban rages…

Nigerians were stunned when the Central Bank of Nigeria (CBN) announced that it would no longer sell dollars to Bureaux de Change (BDCs), because they had abused the reason for the policy. With large populations that rely on the BDCs to carry out their forex transactions, CBN’s decision, they argue, will further worsen an already difficult process; BENJAMIN UMUTEME reports.

This was the least of what was expected as one of the outcomes of the last Monetary Policy Committee (MPC) meeting. In fact, many analysts were left in a state of shock when the CBN governor, Godwin Emefiele, announced that the Apex bank will discontinue the sale of dollars to Bureau de Change.

Speaking on the decision to stop forex to the BDCs, Emefiele said the Monetary Policy Committee noted with disappointment and great concern that the BDCs had defeated their purpose of existence to provide forex to retail users, but instead, they had become wholesale and illegal dealers.

He said, “Operators in the BDC have not reciprocated the gesture to help maintain price stability in the market since the CBN had been selling forex to them. They have remained renegade and so greedy, recalcitrant with abnormally high profit from these sales while ordinary Nigerians have been left to feel the pain and therefore suffer.

“Given this rent seeking behaviour, it is not surprising that since the CBN began to sell forex to the BDCs, the number of operators has risen from mere 74 in 2005 to over 2,700 in 2016, and almost 5,500 BDCs as at today.

“In addition, the CBN constantly receives nothing less than 500 new applications from BDC licences every month, and we therefore begin to wonder, what is in this business that everybody must be in?”

Currency traders’ fears

There are fears that the exclusion of BDCs from forex sales may lead to a rise in the exchange rate to about N600 to a Dollar. According to the traders, they expect the market to respond and devalue as it did in 2016 and 2017 when a similar decision was announced by the apex bank.

On January 11, 2016, when the CBN also banned the BDCs for similar acts, the exchange rate was N268/$1, and by 31st December, the exchange rate had depreciated to N495/$1. This time the operators are suggesting the exchange rate in the parallel market may hit N600/1$ over increasing pressure on demand in the coming days.

“I can assure you of changes in the coming months. I don’t see how the CBN will meet the size of demand outside the official market,” a trader said on condition of anonymity.

Already, their fears have started coming through as the naira fell further to the dollar trading at N520/$1 after the announcement. There are further fears that it may not only result in job loss but further worsen the country’s inflation rate which was already on a decline.

Nigerians react

Meanwhile, Nigerians have been reacting to the announcement by the apex bank. While some say CBNs action would be counterproductive as they seem to underestimate the size of demand outside the official market. Others are of the belief that the decision will correct a long standing anomaly.

For economist Rislanudeen Muhammad, the action by the CBN is a positive one urging the Bank to rather focus supporting legitimate transactions that will create jobs.

He said, “In a country struggling with rising debt to GDP ratio as well as more worrisome debt to revenue ratio, weak and unpredictable export receipts (approximately USD60 billion), spending an estimated USD 5 billion annually to subsidise personal travel allowances etc in a Covid-19 period is unrealistic. The CBN Governor has taken the first positive step. However, transferring that business from BDCs to DMBs will hardly change matters as far as potentialities of arbitrage is concerned. Nigerians are already buying forex at market rates. With scarce forex, CBN should focus on supporting legitimate transactions that need critical imports to support job creation and stop that subsidy at the retail end of the forex market. Different rates need to be converted around the more realistic I and E window and minimize any potentiality of arbitrage. That will support more private sector USD foreign inflow inclusive of Diaspora inflow, liquidity, stability and predictability in the forex market.”

Also, analysts at Afrinvest urged the CBN to increase sales to banks, as well as provide funding to local producers, particularly of the now 44 items restricted from accessing forex at the official rate. To avoid a repeat of the 2016 episode, they advised the CBN to clarify the ambiguity in its exchange rate policy to gain the confidence of foreign portfolio investors, increase the forex allocation to banks to enable them to cater to all genuine demands.

“The CBN should scale back banks’ forex processing requirements, to attract Nigerian into the official forex loop and that the CBN intensify public awareness on the need to embrace the latest development, to prevent unfavourable reactions that could further promote speculative trading,” they said.

A former president, Association National Accountants of Nigeria (ANAN), Dr. Sam Nzekwe, commended the CBN for the step it took, saying BDCs had long deviated from their core role.

According to him, “BDC is meant for light travelers, someone that is traveling and has no time to go to the bank who can just stopover at the airport and buy a few dollars and travel with it. The CBN was allocating forex to them which was a wrong decision, and it is a terrible thing. That is why they encouraged round-tripping.”

He said the new policy “will reduce the prevailing pressure on the forex market as end users are now assured of availability and ease of accessing forex within banking hours at official rates.”

In his reaction, Uche Uwaleke, a professor of finance and capital market at the Nasarawa State University, said the ban “on the positive side, is consistent with the move by the CBN to unify exchange rates and bring more transparency to the forex market.”

He said apart from conserving the waste of forex, with the new policy direction, CBN is expected to conserve the nation’s foreign exchange earnings from crude oil sales and build the nation’s foreign exchange reserves which have not reflected the appreciable increases in the price of crude oil sales in the international market.

“Further, speculative demand for forex is also likely to reduce. I am aware that BDCs have been accused of being vehicles for bribery and corruption. This will likely be reduced. It goes without saying that a more transparent forex market will improve confidence in the economy and could lead to increased foreign investments,” he said.

Instead of easing access to forex and enhancing the exchange rate of the Naira, the BDCs operators have engaged in round-tripping and hoarding of forex thereby creating artificial scarcity to sell at higher than approved rates thus serving as conduit pipes for money laundering and indulging in many other illicit transactions not envisaged by the CBN.

The further negative implications of the compliance failures of the BDCs include but are not limited to the dollarisation of the Nigerian economy, subversion of the cashless policy, common ownership of several BDCs by the same operators in the sector in order to obtain multiple forex from the CBN and continued patronage of illegal BDCs by international organisations and embassies.

‘Disrupting economic racket’

In his view, the chief operating officer (COO) of Financial Derivatives Company (FDC) Limited, Bismarck Rewane, said the apex bank may have unwittingly upturned table of one of the ‘juiciest gravy trains in the Nigerian economic racket’ with the disruption of the sales of foreign exchange (forex) to the BDCs.

For the FDC boss, even though BDCs were licensed by CBN, it had reached a point where the programme was no longer tenable or sustainable. According to Rewane, the decision is a far reaching one, compared to the ‘boring status quo and reasons for and against the usual suspects – inflation, growth and interventions.

“The interim solution of substituting BDCs with banks is hardly going to achieve much. You are virtually handing over the yam barns to goats to secure. In the end, there will be no yams or goats.”

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