Godwin Emefiele, CBN governor

BY EMEKA EJERE

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

Naira fell 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 today’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.

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.”

Analysts say 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.