AUGUST 08, 2021

…Naira gains in parallel market

 

The Central Bank of Nigeria’s red card on July 27, 2021 to over 5, 000 operating Bureau De Change was the apex bank’s ultimate opportunity to end years of serial forex infractions by operators of BDCs and put the naira on the path of stability. PAUL OGBUOKIRI and ABDULWAHAB ISA report

 

Ban on sale of forex to BDCs paying off

Indication this week was that the Central Bank of Nigeria’s decision sidelining the Bureau De Change (BDC) operators from the Foreign Exchange supply chain is already paying off well.

The commercial banks, it was disclosed, have responded to the CBN’s directive urging them to create a dedicated forex desk that will handle forex requests. Reports monitored in Abuja and Lagos and elsewhere showed the Deposit Money Banks(DMBs) have set up teller points for foreign exchange (FX) transactions in their branches in compliance with the new regulation by the Central Bank.

Recall that Emefiele on banning direct sale of forex to the BDCs, ordered all commercial banks in the country to “with immediate effect create a dedicated teller point in designated branches for sale and disbursement of foreign exchange to customers, who desire FX for legitimate purposes”.

He directed that “once a customer provides the basic documentation to purchase foreign exchange, all banks must immediately either on demand or within a stipulated time frame, sell foreign exchange to the customer.

Any customer who does not receive foreign exchange along these lines must report this to their bank and where they are unsatisfied with the resolution, they are required, and indeed they must contact the CBN on toll-free line number 07002255226 or email [email protected] to lodge a complaint with details of the bank transaction”.

Early in the week, the Acting Director Corporate Communications of CBN, Osita Nwanisobi, in an interview with journalists in Abuja, said that the Central Bank will strictly monitor commercial banks in compliance with the directive to sell foreign exchange to customers for their invisible needs such as basic travel allowance, PTA, medical and tuition fees payment.

He said that the apex bank had put in place a monitoring mechanism to guarantee the seamless sale of foreign exchange to customers, who supported their requests with relevant documentation. He said the Central Bank had also extracted the commitment of the banks, through their Chief Executive Officers, that customers with legitimate requests will not be turned back.

 

Naira gains after CBN’s FX ban for BDCs

Meanwhile, it was disclosed that the naira gained against the U.S. dollar at both the unofficial and official market segments last week Friday, data from both market sessions showed.

According to data recorded on abokiFX. com, a website that collates parallel rates in Lagos, the local unit closed at N515.00 per $1 at the parallel market window on Friday.

This represents a N5.00 or 1.00 per cent appreciation from the N520.00 rate it traded in the previous session on Thursday, after witnessing an all-time devaluation record on Wednesday as the Central Bank of Nigeria (CBN) stopped forex sales to Bureau De Change operators.

The naira, which opened at the black market window at N520.00 per $1 dollar, appreciated to N517.00 at noon before settling at N515.00 at the close of business on Thursday.

Similarly, the domestic unit gained slightly against the U.S dollar at the Investors and Exporters (I&E) window also known as the Nafex rates. Data posted on the FMDQ Security Exchange where forex is officially traded showed that the naira closed at N411.44 per $1. This implies a N0.23 or 0.1 per cent appreciation from the N411.67 rate it traded in the previous session on Thursday.

The currency saw an intraday high of N400.00 and a low of N412.25 before closing at N411.44 on Friday.

The market segment forex supply skyrocketed by 83.51 per cent, with $121.08 million posted at the end of the market session as against the $58.07 million recorded in the previous session on Thursday.

This leaves the spread between the official market and the unofficial market rates at N103.56, with a disparity of 20.11 per cent as of the close of business Friday.

The big win from this development is that the naira may have woken from its long slumber, revving up with strength. As on Wednesday at the parallel market in Lagos, the naira was bought at N498 and sold at 506 a dollar.

The BDC rate was N495 to a dollar, buying and N508 selling. It was N500 buying on July 30 and sold at N515 to one dollar. The inter-bank rate of the naira to the dollar on Wednesday was 409.1/$ buying and 410/$ selling.

 

Why CBN hammer fell on the BDCs

 

According to the Central Bank of Nigeria (CBN), to arrive at this, it was years of running battles with BDCs operators who were allegedly unwilling to yield to the rule of the game. It alleged that the BDCs became a torn in apex bank’s flesh, frustrating every effort or policy designed by the Central Bank to prop up naira value against rival foreign currency.

 

It added that the unfair dealings of the BDCs account for 80 per cent of the problems responsible for weak naira against major currencies of the world. Regrettably, Sunday Telegraph learnt that the policies of the Central Bank on BDCs were routinely flouted by the operators, a development that made it imperative for the regulatory hammer of the apex bank to fall on the BDCs on July 27, 2021, with CBN Governor, Mr. Godwin Emefiele, announcing complete cut off forex supply to BDCs. Emefiele listed many sins, infractions committed by BDCs.

 

He said BDCs deviated from the original objective for which they were established. Instead, their activities, he said, resulted in unintended and unfortunate consequences for the country.

 

 

 

According to the CBN Governor, there is an “avalanche of rent seeking operators only interested in widening margins and profits from the foreign exchange market, regardless of prevailing rates in the market. He lamented the “gradual dollarization of the Nigerian economy with attendant adverse consequences on the conduct of the monetary policy and subtle subversion of the cashless policy initiative of the Central Bank of Nigeria”.

 

 

CBN, Emefiele said, was also not happy about the “prevailing ownership of several BDCs by the same promoters tailored to illegally procure foreign exchange multiple times from the CBN; numerous and repeated financing of unauthorized transactions with foreign exchange procured from the CBN.

 

He said the decision to stop the sale of forex to BDC operators had become imperative because, “BDCs have turned themselves into agents that facilitate graft and corrupt activities for people who seek to conduct illicit funds flow and money laundering in Nigeria and we will go after all of them,” he added.

 

Forex sales to BDCs fuels corruption An economist, Prof. Akpan Ekpo, has commended the Central Bank of Nigeria (CBN) for discontinuing sale of forex to Bureau de Change (BDC) operators in Nigeria.

Ekpo, a former Director General of the West African Institute for Financial and Economic Management (WAIFEM), said for BDC operators to obtain forex from CBN at an official rate and then sell to those who need forex was unnecessary.

 

“The decision to discontinue sale of forex to BDC operators is a welcome development.

 

They should never have become major players in the market. “Nigeria is one of the few countries in Sub-Sahara Africa in which the Central Bank sells forex to BDC operators. “We argued for years that the practice should cease but we were labeled radicals. “BDC operators should source for their forex and engage in buying and selling of foreign currencies,” he said. Ekpo advised the BDCs to strive to bring more forex from legal sources to the economy, adding that the impact on the economy would depend on the quantum of forex in the economy.

 

CBN action would bring sanity in the forex market

 

A former Director, Budgeting Department of CBN, Dr. Titus Okunrounmu, said the decision of the apex bank to discontinue sale of foreign exchange to BDC operators would also help to curb corruption.

 

Okunrounmu said it was also a new dawn for those that want to get foreign exchange to travel out of the country. “It is a measure that will help to stabilize the naira but the CBN needs to look into other aspects of the economy,” he said.

 

The former CBN director said the selling of forex through commercial banks would stabilise the nation’s naira, as every transaction in the bank would be well documented.

 

He said the BDC operators were being managed by one or two persons, which often aided money laundering activities.

 

Also, Dr Samuel Nzekwe, former President, Association of National Accountants of Nigeria (ANAN), said it was a good development as genuine importers would now be able to get required foreign exchange for their business transactions.

 

Nzekwe alleged that the BDC operators were part of the country’s problem of finding a way to stabilize the naira.

 

Price of goods, inflation may rise

 

Also, a financial analyst, Ayodeji Ebo, said the policy, if not well implemented, may increase inflation and also decrease the standard of living of Nigerians further. “We expect an initial reaction in terms of scarcity because when the margin of supply reduces, the BDCs will only rely on forex from autonomous sources and that depends on the inflow,” he said.

 

“A lot of items that are not on the CBN list will find it difficult to access forex through the bank as a result will push the demand to the parallel market.

 

“This will cause pressure at the parallel market because the demand will be very high. “If not properly implemented, there will be a major increase in inflation rate because the cost of goods and services will move up, because a lot of them are dollarbased.”

 

He advised that Nigerians should brace up for harder times in the medium term. “What the banks were able to achieve with the setting up of a remittance desk, they need that model across to sell forex too as to the legitimate demand,” he said.

 

Another economist, Babatunde Moses, also predicted that Nigerians are likely to experience additional inflationary pressure in the short term because BDCs are major sources of forex to the general public.

 

“So, prices of imported goods (which constitute a large share of our daily consumption) are likely to go up in the interim since USD is now very scarce,” he said.

 

On the policy effect, he said the CBN is likely to achieve its aim of reducing round tripping and illegal trading happening at the BDC level.