-As CBN Unveils Flexible Forex Guidelines
About 30,000 jobs may be lost in the Bureau De Change (BDC) segment of the foreign exchange (forex) market following the newly introduced flexible forex policy aimed at achieving stability of the Naira.
Guidelines for the new forex regime were unveiled by the Central Bank of Nigeria (CBN) in Abuja Thursday.
This disclosure was made by the Ag. President, Association of Bureau De Change Operators of Nigeria (ABCON), Muhammed El-Amin, in a telephone chat with The UNION.
According to El-Amin, the BDCs offer currency retail services that are critical to the economy and provides about 30,000 jobs across the country.
He said that ABCON members and their workers might be thrown into the labour market as the new forex guidelines were not designed to accommodate the BDCs.
The CBN did not accommodate the BDCs in the new arrangement that introduced a single-market structure with the banks as Authorised Dealers.
New players designated Primary Dealers, will also be licensed under the new regime.
The guidelines represent a major policy shift that allows the floating of the Naira in determining its market rate, thereby removing it from the grips of the apex bank as against the control system that had existed before now.
According to the CBN Governor, Godwin Emefiele, the apex bank will operate a single-market forex structure through the Inter-Bank Foreign Exchange Market that will not admit the BDC operators.
Emefiele also said that CBN will participate in the forex market through dynamic “Secondary Market Intervention Mechanisms” (SMIM).
The flexible forex policy will remove the Naira from the control of the CBN making its rate to be determined by market forces.
Some analysts argue that the change from controlled to floating regime would solve the problem of scarcity as well as promote market efficiency.
The CBN has been battling the dwindling foreign exchange reserves that took a worse turn mid-2014 following the tumbling of oil prices in the international market among other global headwinds.
Emefiele said the CBN had witnessed a significant decline in its Foreign Exchange Reserves from about US$42.8 billion in January 2014 to about US$26.7 billion as of June 10, 2016.
“In terms of inflows the Bank’s foreign exchange earnings have fallen from about US$3.2 billion monthly to current levels of below a billion Dollar per month,” Emefiele also explained.
The key aspects of the guideline include the introduction of single-window structure which makes the inter-bank segment the only forex window.
The currency will be market driven, with the CBN intervening as the need arises using the “Secondary Market Intervention Mechanisms” (SMIM).
There will be primary forex dealers appointed by CBN who will deal with large transactions; and no transaction will involve pre-determined spread to check-mate the nefarious activities of speculators.
The primary dealers, eight to 10 of them, would supply the inter-bank market with dollars, and would handle minimum volume s of US$10 million.
They will be allowed to sell back 70 per cent of any dollars bought from the Central Bank on the day of purchase, and sales must be backed by a specific customer order to avoid currency speculation.
Analysts and industry experts have lauded the new forex policy which has been the position of proponents of market-determined exchange rate as against the managed system that has led to inefficiency and unethical practices.
Ayo Teriba, CEO, Economic Associates, said the move would ensure stability of the Naira in the long run as well as significantly narrow the gap between the official and parallel market under the old system.
“The expectation now is that a lot of investors and Nigerians in Diaspora will bring in their money for investment and home remittances; we will witness an upswing in Dollar supply,” said Bayo Rotimi, a Lagos-based financial analyst in a television discussion.
El-Amin does not see the forex market function without the BDCs because of their critical role in the economy.
According to him, “If the BDCs are going to be completely shut out of the market, the implication is that we will close down our shops; there will be unemployment among the about 30,000 players in the industry.
“By excluding the BDCs, the CBN has already created disequilibrium in the market by favouring a segment against the other, which will put the stainability of the new forex regime under threat.
“We are still going to witness rent-seeking activities, round-tripping and other unhealthy practices which were the order of the day.
“There is no place in the world that you do not have BDCs, they are even avenues for generating foreign exchange in some economies because they are more convenient, they are more tourist-friendly, they operate 24 hours unlike the banks …”.