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Economy… CBN’s Forex squeeze: Beginning of the end?

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In from Ali Smart . . .

Since the Central Bank of Nigeria forex restrictions came into effect, Bureau De Changes (BDCs) operators across the country have come under serious scrutiny by the apex bank due to the mutual suspicion that the BDCs may either by act of omission or commission be flouting the order at will.

As to be expected, the CBN set rules of engagement for operators in the sector by simply placing a cap on the amount of forex allocated to the BDCs among other sanctions in case of violations on the part of the operators.

But from all indications, the CBN may have literally passed a death sentence on BDCs with its new policy which has placed an end to the sale of forex directly to the BDCs by the apex banking regulatory agency.

CBN sledge hammer

Addressing journalists on the development on Monday in Abuja, the CBN governor Mr Godwin Emefiele said BDCs would henceforth seek forex outside of the CBN from autonomous sources while also assuring that the CBN would deploy more resources to monitor these sources to ensure that no operator is in violation of the nation’s anti-money laundering laws.

These measures, the CBN governor said, “are not intended to be punitive on anyone or any group, rather it is meant to ensure that the CBN is better able to carry out its mandate in an effective and efficient manner, which guarantees preservation of our scarce commonwealth, and that our hard-earned financial system stability remain intact to the benefit of all Nigerians.”

The apex bank took these decisions because of what the Governor described as “total disregard of the difficulties that the CBN is facing in meeting its mandate of maintaining the country’s foreign exchange reserves to safeguard the value of the Naira.”

Apparently miffed by uncooperative attitudes of those who are supposed to help with the implementation of the new policy regime on forex restrictions, the CBN boss observed that “Bureaux de Change (BDCs) operators have abandoned the original objective of their establishment, which was to serve retail end users who need US$5,000 or less. Instead, they have become wholesale dealers in foreign exchange to the tune of millions of dollars per transaction. Thereafter, they use fake documentations like passport numbers, BVNs, boarding passes, and flight tickets to render weekly returns to the CBN.”

Read also: Hard days ahead as CBN insists on forex restrictions

Emefiele further noted that “despite the fact that Nigeria is the only country in the world where the Central Bank sells dollars directly to BDCs, operators in this segment have not reciprocated the Bank’s gesture to help maintain stability in the market.”

Specifically, he said, “whereas the CBN has continued to sell US Dollars at about N197 per dollar to these operators, they have in turn become greedy in their sales to ordinary Nigerians, with selling rates of as high as N250 per dollar.”

Given this rent-seeking behaviour, Emefiele said “it is not surprising that since the CBN began to sell foreign exchange to BDCs, the number of operators have risen from a mere 74 in 2005 to 2,786 BDCs today. In addition, the CBN receives close to 150 new applications for BDC licenses every month”.

More disturbing to the CBN is the financial burden being placed on the Bank and the country’s limited foreign exchange.

The CBN, Emefiele said, “sells US$60,000 to each BDC per week. This amount translates to US$167 million per week, and about US$8.6 billion per year. In order to curtail this reserve depletion, we have reduced the amount of weekly sales to US$10,000 per BDC, which translates into US$28.4 million depletion of the foreign reserve per week and US$1.476 billion per annum.”

This he said “is a huge hemorrhage on our scarce foreign exchange reserves, and cannot continue especially because we are also concerned that BDCs have become a conduit for illicit trade and financial flows.”

Asked why it has proven difficult or impossible to prosecute erring BDCs, Emefiele said it is almost impossible for the Bank to monitor over 2700 BDCs with its limited number of examiners.

BDCs not happy with this decision the CBN said “are free to return their license and get a refund of the N35 million cautionary fees. Besides we need more people to go into other forms of businesses like agriculture where we believe there is a lot of scope at this time.”

The CBN he added “saw a situation where people were going into their accounts, took their nairas out of their accounts to buy dollars and indeed some were going to their banks to borrow money to buy dollar and stack those dollars in their accounts and of course it got to a point where the banks vaults were full and the banks wanted us to collect the cash and give them electronic dollar which we said we will not do and so what we had to do at that time was to plug the torrents of flow of the dollar, that has been achieved and at this point we are beginning to think of opening the tap a little and let’s begin to see whether there will be proper orderly behaviour by operators as well as people in the market.”

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Ripple effect of the ban on BDCs

He explained the immediate impact of the decision to stop selling foreign exchange to the BDCs “it is the dollars that the CBN is giving the BDCs that is being round tripped to the banks. That is the reason we said at this time because of limited resources we would not be able to fund the BDCs. They will believe there is always autonomous market and indeed in every part of the world there is the autonomous market. We believe that the autonomous market should be allowed to flourish and let’s see how it goes with the CBN out of that market.”

Operators lament

Expectedly, the operators in the forex market are embittered over the new policy regime.

In the view of the president of Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadabe, the policy is counterproductive because it is an attempt to call a dog a bad name in order to hang it.

According to him, the forex market has been experiencing a lull in activities since the forex restrictions and the new policy, he therefore maintained, would help to worsen the already precarious situation.

“At the level of the association, we’re constantly monitoring our members to ensure that no one runs afoul of the laws of the land and we’ve been succeeding. In fact, l can tell with every sense of responsibility that our members have continued to support the policy initiatives of the CBN as the apex regulatory agency in the sector. And that is why we’re pained that the CBN didn’t carry us along before taking the latest steps it took. This policy is like a death sentence for us.”

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