By Uche Usim (Abuja), Adewale Sanyaolu and Chinwendu Obienyi
The Central Bank of Nigeria CBN Governor, Mr Godwin Emefiele, Tuesday disclosed that the $110million weekly allocation and sale of foreign exchange to Bureau De Change (BDC) operators in the country has stopped.
The Governor, who made the disclosure at a media briefing shortly after the July Monetary Policy Committee (MPC) meeting of the bankin Abuja noted that the BDCs have become a fulcrum for corrupt Nigerians to launder money to wreck the economy.
He also described them as conduits for fraudsters to conduct illicit flows all to the detriment of the country.
The CBN boss also announced that the MPC chose to retain all policy parameters, including leaving the Monetary Policy Rate (MPR) at 11.5 per cent; asymmetric corridor of +100/-700 basis points around the MPR; the CRR at 27.5 per cent; and Liquidity Ratio at 30 per cent.
On ending forex supplies to BDCs, Emefiele said the apex bank can no longer fold its hands and allow their unwholesome practices to blossom.
“They have turned themselves away from their objectives. They are now agents that facilitate graft and corruption in the country. “We cannot continue with the bad practices that are happening at the BDC market.
“Several international organisations, embassies patronise BDC through illegal forex dealers to fund their institutions.
“We will deal ruthlessly with Nigerian banks that deal with illegal BDCs and we will report foreign organisations patronising them.”
Emefiele noted that there was evidence of prevailing ownership of several BDCs by the same promoters to procure multiple foreign exchange from the apex bank.
He added that the forex hitherto allocated to them will now be channeled to Deposit Money Banks (DMBs) to manage, warning banks not to hoard forex as customers have been asked to contact the CBN and report such illicit acts.
Emefiele explained that bank customers who meet the criteria for forex should get it without delay, stressing that the move was not punitive but to ensure financial stability.
Reacting to the development, Nigeria’s professor of the capital market, Prof Uche Uwaleke, told Daily Sun that the decision by the CBN to stop forex sales to BDCs has merits and demerits.
“I think it is in the best interest of the Nigerian economy.
“On the positive side, it is consistent with the move by the CBN to unify Exchange rates and bring more transparency to the forex market. Exchange rate unification is in line with the IMF and World Bank’s recommendations and so improves the country’s profile and credit standing before International financial institutions. It signifies that the country is serious in her reform efforts.
“It will slow down the rate of depletion in external reserves. The move is likely to check round tripping of forex and reduce supply of forex in the parallel market.
“Further, speculative demand for forex is also likely to reduce. “On the flip side, this measure will wipe out the employment opportunities created in the sector with over 5000 BDCs with several others waiting to be licensed.
This action is probably counterproductive because the CBN may be underestimating the size of demand outside the official market and the policy change will do little to address the sharp disparity in the official and parallel market exchange rates. Whosoever is advising Emefiele and his cohorts are not doing a good job at all. We think this move is correcting a long-standing anomaly. BDCs are licensed to meet demand for personal and business travels and not for big-ticket items that should translate to demand of over $100 million a week.
Commenting on the development, on television program yesterday, Head of Retail Investments at Chapel Hill Denham, Ayodeji Ebo, while reacting to the development on Channels TV said the decision of the CBN to bar BDCs will have some impact on the parallel market. He noted that the BDCs are a major player in the foreign exchange market and any decision of CBN will definitely impact them
Governor Emefiele noted that the CBN is the only central bank in the world that sells foreign exchange to BDCs. Some market operators also note that “there is nothing that BDCs do that banks cannot do better” and that over 6,000 BDCs add little or no value to the market today.
That said, we also think financial markets will react to news and the announcement is expected to spark volatility in the parallel market for foreign exchange, more so because of the timing of the announcement. The move is coming in late July when demand for foreign exchange for personal travel and school fees is typically high.
He noted that the BDCs are a major player in the foreign exchange market and any decision of CBN will definitely impact them.