Naira notes

Why Naira is under attack, by ABCON president

Policy inconsistencies of the Central Bank of Nigeria (CBN) continued unabated at the weekend with the reinstatement of Bureau de Change (BDCs) operators in the bid to stabilise the foreign exchange (forex) market.

Indeed, bringing back the BDCs can help increase the supply of forex in the market, which can also help meet the demand for foreign currency and potentially ease pressure on the exchange rate that had been on a roller coaster these past few weeks.

With the new arrangement, CBN hopes working with BDCs would help formalise forex transactions that might otherwise take place in the informal window or black market.

Stakeholders said this step would enhance transparency and accountability and introduce competition into the forex market, which could lead to more competitive exchange rates.

However, depending on the level of demand and supply, influx of forex from BDCs might not be sufficient to significantly impact the exchange rate, especially if there are other factors contributing to the high exchange rate.

However, BDC operations can create opportunities for arbitrage if the official exchange rate and BDC rates differ significantly. This can lead to market distortions and rent-seeking behaviour.

If not properly managed, increasing the supply of foreign exchange through BDCs could contribute to inflation by increasing the money supply.

Therefore, BDC operations need to be closely regulated to prevent money laundering, illegal activities, and abuse of the system. Going by the policy inconsistencies and capacity of the apex, which has been demonstrated in recent years, ensuring proper regulation and oversight might be a challenge.

BDC rates might not always accurately reflect market fundamentals, leading to a disconnect between official exchange rates and BDC rates. In a circular ‘TED/FEM/PUB/FBC/001/007’ addressed to BDC operators, the CBN anchored its decision on its desire to improve the efficiency of the Nigerian foreign exchange market.

It said the spread on buying and selling by BDC Operators shall be within an allowable – limit of – 2.5 per cent to +2.5 per cent of the Nigerian Foreign Exchange market window weighted average rate of the previous day.

“Mandatory rendition by BDC Operators of the statutory periodic reports (daily, weekly, monthly, quarterly and yearly) on the Financial Institution Forex Rendition System (FIFX), which has been upgraded to meet individual Operator’s requirements.

“Operators are to note that with effect from the date of this circular, non-rendition of returns would attract sanctions, which may include withdrawal of operating license. Where Operators do not have any transaction within the period, they are expected to render nil returns”, CBN stated.

An economist, Paul Alaje, stressed the need to put in place a monitoring mechanism that would be better saying, “We need to do everything possible to reduce speculation on the naira.”

Speaking on the impact of the new guidelines on BDCs and how the policy will deepen liquidity in the market, the National President of the Association of Bureau de Change Operators of Nigeria (ABCON), Aminu Gwadabe, said with the CBN moves to reform the market, it will no more be business as usual.

“What it means for us as BDC operators is compliance with what is contained in the circular. You know we have issues of revoking licences and not revoking, and up till now, people cannot get a hold of what is the truth. Most importantly, they have given an anchor rate, which is a guide for the industry explaining how a BDC should act whether you are buying CBN money or not.

“The circular has gone further to say, render your returns because the statutory and regulatory requirements of a BDC demand that you must have record keeping, monitoring transactions system, a compliance officer, etc. So, they are now telling us that we must meet these criteria. They are coming up with their list, no doubt about it. Also, though they allowed us for the moment, about 95 per cent of us are not even doing transactions. If those that are not transacting should send a report to you, they will send ‘nil’ because they are not doing transactions. So, they have considered that in the circular. They said even those who are not doing transactions must send a report as part of their house cleaning exercise.

“We are happy with the move to democratise the process, there are so many opportunities, we have our prayers to them, which is they should not allow us to be only cash-based BDCs. The BDCs in other climes are doing outward and inward money transfer transactions. Cash is getting less prominence. Licenced online outlets in other climes are even the ones carrying out the bulk of the transaction, and that is why the acting governor (Folashodun Adebisi Shonubi) is complaining he doesn’t see the inflow. How can you see inflows when all transactions have not moved digitally? They are still looking at the manual system of reporting. It is not possible to see many inflows when you rely on cash-based transactions.

“They should empower the local BDCs and enable them to have such a system and technology. It is a simple thing. ABCON has put cloud IT for over 2,000 members. It is just to revamp it to investigate what they are adding now in terms of their specific returns. We understand all the returns they mentioned but there is the problem of an enabling ecosystem. They must involve stakeholders and Bureau de Change. Let us together look at the template and see how we can do it and enhance it,” he stated. (The Guardian)

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