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Analysis: Why CBN caved in on forex restrictions

By Ali Smart

When the governor of the Central Bank of Nigeria, Godwin Emefiele addressed the last Monetary Policy Committee (MPC) meeting in the last quarter of 2015, precisely in November 24, he foreclosed any chances of lifting the over six-month old ban on forex restriction.

This was in spite of strident calls by manufacturers and other businesses which painfully bore the brunt of what many economists and financial pundits have come to describe as a very retrogressive policy at this age and time.

But when the almighty boss of the International Monetary Fund (IMF), Ms. Christine Largarde made a whistled trip to Nigeria about a fortnight ago and impressed on the federal government the need to relax the forex restrictions in order to, as she observed, achieve “business-friendly monetary, flexible exchange rate and disciplined fiscal policies, as well as implementing structural reforms,” many people had reckoned that the government would not accede to her request. But the rest as they say is history.

Justification for CBN volte face

Few days after the IMF chair departed, the CBN in a move quite unexpected literally threw in the towel by announcing much to the excitement of Nigerians that the ban on forex had been lifted.

Justifying the need for the new policy regime, the CBN governor in a statement personally signed by him said the policy became inevitable in order to relief the CBN of the huge burden on forex supplies.

With the lifting on the ban, commercial banks in the country resumed the business of foreign currency (dollar) transfer in customers’ domiciliary accounts to their local and international business partners subject to a daily cumulative limit of $10,000.
Confirming this development, the CBN spokesman, Ibrahim Mu’azu while justifying the initial ban, said it became inevitable in order to curtail illicit fund flows, money laundering, and terrorism financing both in Nigeria and around the world.

But what the CBN failed to tell Nigerians is that the decision to relax the forex restriction on commercial banks was partly to massage IMF’s ego and that of some high heeled personages in the corridors of power.

The apex bank, according to him, would increase its vigilance to ensure that Nigerian banks were not used as conduits for illicit fund flows, especially in foreign currencies.

He said that the banks would continue to curtail the acceptance of foreign currency cash deposits, much the same way as customers in other countries cannot just walk into banks and make foreign currency cash deposits without proper documentation.

Read also: CLO backs CBN on BDCs, says a Senator owns 24

“We will also ensure that persons who venture into currency speculation and currency substitution find it unattractive and dangerous. In these efforts, therefore, we seek the continued cooperation of all Nigerians to make this work for the enhancement of our shared progress, rather than the prosperity of a greedy few amongst us,” he said.

But experts said they expect the CBN to further lift ban on its directive that commercial banks pay for their dollar purchases at the official forex window 48 hours ahead of the bid date.

Under the policy, banks and other forex dealers are required to deposit the naira equivalent of the total forex bids at the apex bank 48 hours in advance.

But analysts insist that the fall in Nigeria’s monthly forex earnings from $3.2 billion to $1 billion in the last six months due to drop in crude oil prices was responsible for the strict forex restrictions being implemented by the CBN. Oil prices have dropped from a peak of $114 barrel in July 2014 to as low as $29/barrel this month. The reserves have also suffered great pressure from speculative attacks, round-tripping and front loading activities by actors in the forex market.

Echoing similar sentiments, the Chief Executive Officer of the Financial Derivatives Company Limited, Mr. Bismarck Rewane, described the CBN’s pronouncement as the beginning of the journey towards addressing the issue of forex restrictions in the country.

Raising some posers, Rewane said: “But the price and value of the currency needs to be addressed. The next step should be at what price? Can people use their ATM cards for transactions? But this is the beginning of a managed-floating rate. It is in the right direction, but we need to do more.”

It was gathered that some European airlines operating in the country made over $470million from jet-set Nigerians which they desperately wanted to repatriate back home, amounting to about $2billion yearly.

On his part, the acting President, Association of Bureau De Change Operators of Nigeria, Alhaji Aminu Gwadabe, said his members had been expecting the pronouncement on the end of dollar sales from the central bank.

“We have been expecting it for a long time. We all know where the economy is and that the forex reserves are at the point of being wiped out. But it is important to keep the records straight.

“Whenever there are issues with exchange rate management, everyone blames BDCs, forgetting that we constitute only three per cent of the market.

“Definitely, this policy would lead to a further depreciation of the naira, there would be cost-push inflation and job losses,” he added.

The untold story

It would be recalled that the CBN governor had been summoned by the upper and lower legislative chambers of the National Assembly to explain why the nation’s local currency was badly haemorhaging these past weeks with the naira exchanging for as high as N300 last week.

Ripples also learnt that some foreign businesses may have lobbied the IMF and other multilateral agencies to arm-twist the government into backing down from its position on forex.

Hence, they were locked in hire-powered negotiations, which partly informed the coming of the IMF chief to help facilitate the easy passage of these funds abroad.

But as things stand, the general consensus out there is that for whatever it is worth the lifting of the ban on forex though late in coming is a good initiative which is expected to get the nation’s economy back on an even keel.

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Ripples Nigeria

We are an online newspaper, very passionate about Nigerian politics, business and their leaders. We dig deeper, without borders and without fears.
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Ripples Nigeria

We are an online newspaper, very passionate about Nigerian politics, business and their leaders. We dig deeper, without borders and without fears.
www.ripplesnigeria.com

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