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CBN Governor, Godwin Emefiele
CBN Governor, Godwin Emefiele

New Forex Policy May Worsen Naira’s Woes –BDC Operators


“If the CBN does not spell out the details of the new policy and make the market wider for the participation of all stakeholders, the Naira will be in trouble; for instance the exchange rate closed N345 yesterday, today (Wednesday) it hit N347 (to the Dollar) because of the pronouncement.”

Sam Diala

Strong indications have emerged that the flexible foreign exchange (Forex) policy announced by the Central Bank of Nigeria (CBN) after its bi-monthly Monetary Policy Committee (MPC) meeting last Tuesday will trigger a new wave of crisis in the market.

Concerns are also being expressed about the failure of the CBN Governor, Godwin Emefiele, to announce modalities for the implementation of the newly created “official exchange window” which analysts say was shrouded in uncertainty and could serve as platform for  unethical practices.

The Acting President, Association of Bureau de Change Operators of Nigeria (ABCON), Muhammed El-Amin, told The UNION that the new floating exchange rate policy introduced by the apex bank would not go a long way in solving the forex crisis as it was intended.

Instead, he said, it would escalate the crisis and make the Naira weaker in value in relation to the US Dollar, thereby spiking inflation, cost of production and putting greater pressure on the local currency.

According to him, the modalities were not spelt out and impression was created that the BDCs were being flushed out of the forex market.

El-Amin condemned the manner in which the CBN governor had presented the BDCs as a segment of the market that could be done away with under the new policy.

He argued further that the CBN had since stopped funding the BDC market and that there was no need to state that the operators should source their forex needs in the autonomous market.

According to the ABCON boss, “He (Emefiele) said they will not continue to sell Dollar to BDCs; he has said that before, it is not new.

“Already we know that CBN had since stopped selling Dollar to us.

“The restriction started with 41 items, then BDCs and later petroleum marketers.

“All these are as a result of dwindling foreign reserve and fall in oil price; none of these have improved and it is only when they improve that CBN can start talking of extending forex to BDCs.

There is, therefore, no need repeating that BDCs have to source their forex from the autonomous market.”

By abandoning its much-criticised fixed rate policy regime in favour of a flexible and multiple market model, the CBN has adopted a floating exchange rate system that allows market forces to largely determine the ‘true’ value of the Naira.

Emefiele said the apex bank would retain a special window to fund “critical transactions” in foreign exchange, which he said would likely attract a “concessionary rate”.

This means that the banks will become the main suppliers of forex and that virtually all forex transactions should be channeled through them.

Analysts observe that the relatively moribund interbank foreign exchange market will be revitalized and would enjoy unrestricted exchange rate preference while the BDCs would depend on the autonomous market to continue their operations.

Emefiele said, on “The foreign exchange market framework, now ready, the MPC voted unanimously to adopt greater flexibility in exchange rate policy to restore the automatic adjustment properties of the exchange rate.

“Consequently, all 9 members voted to hold and introduce greater flexibility in managing the foreign exchange rate.

“The Bank would however, retain a small window for funding critical transactions.

“Details of operation of the market would be released by the Bank at an appropriate time.”

El-Amin expressed displeasure at the way the CBN boss had presented the case of the BDCs which he said was intended to put his colleagues in bad light.

“It is unfortunate he made that kind of announcement, he would have left it quietly because everybody knows CBN has not been selling to BDCs.

“By saying that they are not going to sell to BDCs, it means that all hope is lost and that has impacted negatively on the exchange rate.”

He said CBN cannot supply sufficient forex to the inter-bank market so as to totally eclipse the BDCs because “we are the ones that are really funding the critical sector”.

“It is the BDCs that are servicing the critical retail segment of the economy; the market cannot do without the BDCs.

“Once you mention the BDCs in a negative aspect, you see the Naira weakened further.

“Even if you do not want to give them forex, do not make negative comments that will send a wrong signal to the market.

“If the CBN does not spell out the details of the new policy and make the market wider for the participation of all stakeholders, the Naira will be in trouble; for instance the exchange rate closed N345 yesterday, today (Wednesday) it hit N347 (to the Dollar) because of the pronouncement.”

Market analysts also confirm that the challenge lies in spelling out the modalities for the new flexible exchange policy.

“While we await the modalities of this new policy regime, the real challenge is the introduction of another exchange rate segment for critical transactions.

“This ostensibly creates a dual exchange rate which is open to abuse” said Proshare, a firm of  investment and market analysts.

“Depreciation in the exchange rate will increase the quantity of dollars supplied to the market.

“However, the market structure changes, which should lead to an outward shift in the short-run aggregate supply curve, will take a little longer,” Proshare said on its website Wednesday.

Emefiele disclosed that the MPC decided to retain the key fundamental benchmarks: Monetary Policy Rate (MPR) at 12 per cent, Cash Reserve Ratio (CRR) at 22.5 per cent and Liquidity Ratio at 30 per cent.

“Black Market” operators at the Muritala Muhammed International Aiport, Ikeja Lagos, who spoke to The UNION noted that the new fore policy would not address the supply challenge being witnessed in the market except the economy improves and production of goods and services pick up to the level that inflation will reduce and there is boom in export.

“We are targeting inflation; but the real problem is in boosting production to the level that inflation and interest rates reduce to single digits and export market enjoys the boom that has taken advanced economies to where they are today,” said Mallam Isa Mohammed, who runs a private ‘Bureau De Change’ outfit in the airport vicinity.

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