In a major policy shift, the Central Bank of Nigeria (CBN) last week halted the sale of foreign exchange (forex) to Bureau De Change (BDC) operators. The CBN Governor, Godwin Emefiele, announced the decision after the two-day Monetary Policy Committee (MPC) meeting in Abuja. The ban will ensure that the apex bank discharges its statutory function efficiently and sanitise the forex market. Besides, the ban was due to the “dubious and unwholesome practices” of BDC operators. According to Emefiele, the BDCs”have gone beyond their primary role of being retail dealers of forex… and have become new agents that facilitate graft and corruption in the country.”
Under the CBN guidelines on forex, BDC operators are to serve retail end-users who need $5,000 or less. But they have been accused of exceeding that amount in contravention of Nigeria’s forex regulations, thereby resorting to financing “unauthorised transactions” with forex procured from the CBN. Henceforth, the CBN, according to Emefiele, will no longer process or issue new licences for the BDCs, adding that all licences currently being processed, irrespective of the stage, has been suspended with immediate effect.
Beyond that, the CBN said it had evidence of prevailing ownership of several BDCs by the same promoters to procure multiple forex from the apex bank. The apex bank has also vowed to “deal ruthlessly” with illegal BDC operators, and will report foreign organisations that have been patronising them. Consequently, the CBN has directed commercial banks to set up retail teller points to meet dollar demand for legitimate end-users.
However, there is apprehension that asking every legitimate user to go to a designated teller point to buy forex for the smallest of transactions may still lead to hoarding and other unwholesome practices. The concern is genuine and must be addressed. The CBN has also released $200 million to the banks to quell foreign exchange speculations. The disbursement of the amount to legitimate users reportedly commenced July 28.
With the ban, the sale of $5.28 billion annually by the CBN to the BDC operators has been halted. Hitherto, the BDCs supplied forex to enable end-users pay school fees, Personal Travel Allowance (PTA), medical treatment payments and other bills as well as local businesses in Nigeria. The CBN has also assured the public that every legitimate customer who provides basic documentation for the purchase of forex would get it on demand or within a stipulated timeframe from the banks.
While the reasons for halting the sale of forex to BDC operators are apparently convincing, the development could see the naira hitting a new low against the US dollar and other foreign currencies. Last week, the naira exchanged at N522/$1 at the parallel market. This is not the first time that the CBN would halt sales of dollar to BDC operators. In January 2016, the apex bank did same, alleging that BDCs were using up the country’s foreign reserves for illegal transactions and selling the dollar at N250 compared with the official rate of N197/$. Then, the naira was reported to have weakened by N282/$ on a particular day in January 2016.
There is no doubt that the BDC operators can actually hoard the dollar and jolt the exchange rate. Therefore, the CBN cannot continue to overlook the infractions perpetrated at the BDC market. The decision of the CBN should be seen and appreciated within the context of the apex regulator’s guideline for forex market. It is, therefore, consistent with the move by the CBN to unify the exchange rate and bring more transparency to the forex market. Indeed, the exchange rate unification is in line with the recommendation of the International Monetary Fund (IMF) and the World Bank. The objective is to improve Nigeria’s profile and credit rating before international financial institutions. Above all, it is an indication that Nigeria is serious with its macroeconomic and fiscal policy reforms. The move will slow down the rate of depletion of our external reserves and check round tripping of forex. It will also reduce the supply of forex in the parallel market. As the CBN Governor noted after the recent MPC meeting, Nigeria “is the only country in the world where the Central Bank sells dollar directly to BDC operators.”
The CBN decision is welcome if it will impact positively on the economy and make the dollar available to the end-users without the usual recourse to the black market. The ban notwithstanding, there are also fears that the BDCs will still operate in disguise and heighten market speculation. Since it will be easier to procure dollar at the black market, the CBN must supply enough forex to the money deposit banks. If not, it has barely scratched the symptoms of the malaise. We believe that the new policy can only succeed if the apex bank can supply enough forex to the banks and ensure that the banks actually sell them to end-users and not the ubiquitous black market operators.