CBN’s new policies rattle FX market

BY EMEKA EJERE

The recent ban on the sale of foreign exchange to the Bureau de Change Operators in the country by the Central Bank of Nigeria (CBN) may have pushed backwards the possibility of an end to the crisis rocking the nation’s foreign exchange market.

It does not look less so even with the Chief Executive Officers (CEOs) of banks promising to support the new foreign exchange (FX) measures of the apex bank and the regulator’s effort to achieve FX stability.

However, on the heels of the banks’ CEOs declaration, the naira appreciated to N520 to a dollar on the parallel market on Thursday, stronger than the N525 to a dollar it closed the previous day. Naira had fallen significantly against the U.S. dollar at the parallel market on Wednesday noon, a day after the apex bank’s decision.

The local unit, which opened the day’s trading session at N505 per $1, closed at N522 to a dollar at the parallel market segment, data from abokiFX.com, a website that collates parallel rates in Lagos showed.

This implies a N17.00 or 3.40 per cent devaluation from N505.00, the rate it closed at the previous session of the black market on Tuesday, and the currency’s biggest fall ever.

The CBN Governor, Godwin Emefiele, had while announcing the end of forex sales and new licence approval after the Monetary Policy Committee (MPC) two-day meeting in Abuja, expressed the MPC’s disappointment over their (BDCs’) continuous abuse of the privilege.

Emefiele said the BDCs had defeated their purpose of existence to provide forex to retail user, 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 it?”

Oobserving that BDCs had continued to make huge profits while Nigerians suffered in pain, Emefiele said the commercial banks would be monitored to provide forex for the legitimate use of Nigerians.

“The Central Bank will henceforth discontinue the sale of forex to Bureau de Change operators,” Emefiele said.

The CBN had been supplying each licensed BDCs $10,000 twice per week at the rate of N393 with the instruction that they should sell with a margin of N2.

Speaking during a virtual media briefing on Thursday, Chairman, Body of Bank CEOs and CEO of Access Bank Plc Herbert Wigwe, said authorised financial institutions in the FX market would ensure full compliance with the CBN directives in order to ensure FX stability. Wigwe said customers could walk into their banks to purchase dollars for legitimate transactions, noting that the banks had agreed that the process would start immediately following a meeting with the CBN.

He said the banks were ready to meet the mandate of the CBN, adding that they have more than enough capacity to deliver. He explained that the process would be centralised to avoid abuse.

Wigwe said: “The banking industry is willing and ready to carry out this function. As you are aware, the bank has very strict compliance measures in terms of Know Your Customer (KYC). For us at Access Bank, we will ensure that all our branches meet the requirements.

“If you look at all the banks, you would agree with me that the banks have more than enough capacity to deal with the mandate of the CBN. “If we see non-compliance issues, we will report to the CBN and the law enforcement agencies. So if people intend to do things, such as coming with a second passport and other things, we will report them to the law enforcement agencies.”

He added, “We feel that what the CBN has done is worthy of commendation because people will have access to different channels to collect their BTAs and school fees required for their children.

“The banks have a lot more channels to assist the customers get access to forex, depending on where they are, even if they are in Enugu or Port Harcourt.”

In his remarks, CEO of Guaranty Trust Bank, Segun Agbaje, expressed the readiness of the bank to begin implementation of the mandate given by the CBN.

Agbaje assured customers that the banks had the resources to fund the process, adding that they have collectively agreed to start immediately.

Agbaje said, “There is a lot of abuse around FX, so you will find out that some of the better controlled systems are centralised, while some are decentralised. Customers should not panic, there would be availability of forex, and the banks will run a very transparent process.”

However, economist and former Director-General, Lagos Chamber of Commerce and Industry, Dr Muda Yusuf, said what was happening in the foreign exchange market was a consequence of the CBN’s policy choice of a fixed exchange rate regime and administrative allocation of forex.

He said, “It is a policy regime that has created a huge enterprise around foreign exchange – round tripping, speculation, over invoicing, capital flight etc.

“The action of the apex bank amounts to tackling the symptoms rather than dealing with the causative factors, which is not a sustainable solution.

“It is regrettable that the CBN does not believe in the market mechanism. Yet market systems are time tested as instruments of efficient resource allocation in leading economies around the world.”

He added, “Moving retail forex transactions from BDCs to the banks was like kicking the can down the road. The same issues would manifest even with the banks.”

According to him, the way out of the foreign exchange conundrum was for the CBN to allow the market to function.

He said, “The CBN needs to give the market a chance. Its current approach would continue to deepen distortions in the economy, perpetuate round tripping, fuel speculation, suppress forex supply and boost underground economy.”

Meanwhile, President, Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, has reacted to the CBN’s policy announcement. Gwadabe said the association would engage with the banking sector regulator to address and resolve all the issues that led to the ban on FX sale to its members.

Some analysts believe that the move is bound to push prices of goods and services higher at a time inflation has reached a four-year high. Most Nigerian businesses and travellers source forex from BDCs after CBN placed restrictions on transactions that can qualify for official sales of foreign currencies.