Addressing naira's worsening exchange rate
Naira and dollar


Deposit Money Banks (DMBs) in the country are positioning for a fair share of the huge market expected to arise from the recent central bank’s decision to stop dollar sales to Bureau de Change (BDCs), findings have shown.

While it is obvious that the banks will deploy all necessary business strategies to boost their balance sheet out of the opportunity, what remains a matter of debate is whether or not they will do so without undermining apex bank’s objective of achieving FX stability.

Governor of the Central Bank of Nigeria (CBN), 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.

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. But Emefiele said the currency dealers had defeated their purpose of existence to provide forex to retail users, but instead, 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”, Emefiele stated.

“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?”

Observing 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 had said.

While some commentators have responded to the policy from the perspective of the immediate shocks of the stoppage of sales of forex to the BDCs in the market, calling for a return to the status quo, many others are applauding the CBN’s move, citing the long-term benefits of the ban on the economy. Yet, others see the policy as creating a windfall opportunity for banks through round tripping.

A professor of capital market, UcheUwaleke, among other supporters of the forex ban, has in his various interventions commended the CBN’s decision, advising that the BDCs should source their money having deviated from their core roles and resorted to undermining their privileges by embracing illegal dealings.

“The ban is consistent with the move by the CBN to unify exchange rates and bring more transparency to the forex market”, Uwaleke said.

On his part, lead consultant, ECOWAS Commission, Prof. Ken Ife, observed that at the heart of the forex problem is the fact that, demand for dollar is far higher than the supply, an unfortunate disparity driven by the fact that Nigeria is a highly import-dependent nation.

In an AIT financial market programme, ‘MoneyLine’, monitored by our correspondent, the renowned economist said, “CBN’s decision is a step in the right direction, But the banks are not saints, They’re out there to make profit but the CBN should ensure strict monitoring of compliance.

“So, I don’t think the policy will stop forex crisis because there is every tendency that the banks may continue what the BDCs were doing. But they have to prove that they are the better evil.

‘I think the lasting solutions will be for CBN to allow both banks and BDCs to go out there and source for dollar.”

Also, 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.

Ready to deliver

Expectedly, the banks through their chief executive officers (CEOs) of have promised to support the new FX measures of the apex bank and the regulator’s effort to achieve stability.

Speaking during a virtual media briefing last week, 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.

He 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.”

Similarly, the CEO of Guaranty Trust Bank, SegunAgbaje, 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.”

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