Following its 137th Monetary Policy Committee meeting Tuesday last week, the Central Bank of Nigeria (CBN) announced a ban on sales of foreign currencies to Bureaux de Change operators (BDCs). CBN Governor, Godwin I. Emefiele, who made the announcement at a press briefing, noted that the CBN allocates around $110 million to 5500 BDCs per week, a situation he described as unsustainable.
Mr Emefiele said the BDCs have turned away from their core objectives of providing forex to retail users and have instead become a “conduit” for illicit financial flows. “We are concerned that BDCs have allowed themselves to be used for graft,” he said. He also announced that the CBN will discontinue the registration of new BDCs.
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Henceforth, the CBN Governor said, all foreign exchange allocations will go straight to the commercial banks who have been mandated to set up separate desks for providing forex services to all end users. He warned that banks that do not comply with the new regulations will be sanctioned accordingly.
In reaction, the Association of Bureaux De Change Operators of Nigeria (ABCON) clarified that the CBN’s new forex policy does not mean a withdrawal of their operating licences and that they will continue to source forex from other sources to remain in business, while working with the apex bank and all stakeholders to resolve all the issues that had led to the ban on forex sales to them.
For their part, commercial banks in the country have pledged support for the new policy, saying they would ensure that the new measures from CBN for successful implementation of the policy will not be abused.
While we recognise, and even commend the CBN for taking this bold step towards ending lingering abuses in the foreign exchange market, we are also concerned about its impacts on the wider economy. We agree with the apex bank that allocation of estimated $5.72 billion annually of scarce foreign exchange to BDCs, whose membership has grown exponentially to over 5000 in recent years, is not sustainable in the long run, and harmful to the stability of the naira.
We are also mindful of the concerns often raised by importers and manufacturers of limited access to forex, more of which, they have claimed in several newspaper reports, go to the BDCs, and from whom some buy at significantly higher rates than the official CBN or Investors and Exporters FX Window. Often, the difference between the two official rates and the parallel market rates offered by the BDCs could be up to N60 or higher, for every dollar exchanged.
However, we believe that oversight failures on the part of the CBN in the past and a consumption-based economy perpetually dependent on imported goods are some of the main causes of instability in the foreign exchange market in the country. An economy such as ours, where nearly everything we use, from heavy machines to textiles, food and even toothpicks are imported will continue to have an unstable foreign exchange market.
We are not convinced that the commercial banks will necessarily behave better than the BDCs in terms of compliance with laid down rules. Banks, possibly more than the BDCs, have also been known to aid and abet graft and illicit financial flows in Nigeria. We are therefore worried about the consequences of allocating all the forex to the commercial banks.
More fundamentally, we believe that this CBN new policy works against competition and free market principles, which are core to a market economy such as Nigeria’s. Bureaux de Change are, like the banks, legitimate financial institutions registered by the CBN itself. And both BDCs and commercial banks are all out to make profit. In this sense, the new CBN policy allocating all forex to commercial banks amounts to handing over, by fiat, the business line of one group of companies to their direct competitors, with attendant consequences for job losses in the hundreds of thousands, loss of tax revenues, and other negative impacts on the wider economy.
We therefore recommend the same consolidation policy that the CBN employed for commercial banks with great success about a decade and half ago, rather than outright and permanent ban on sales of forex to the BDCs. The CBN should put measures in place to encourage—by mergers or acquisitions—the thousands of BDCs to consolidate into fewer and bigger, and therefore more secure and better regulated business entities.
We also urge the CBN to put in place more effective measures for allocating forex to importers and manufacturers in the real sector, to develop Nigeria’s ailing infrastructure and expand the economy beyond oil in other to grow the productive capacities of the economy and reduce the pressures on forex.
Above all, we insist that BDCs consolidation, much like the successful banking consolidation, is the way to go.