Last updated on October 19th, 2022 at 07:05 am
I read in the news on Tuesday, July 27, 2021, that Godwin Emefiele-led Central Bank of Nigeria halted the sales of forex to the Bureau De Change operators in Nigeria. CBN will now be supplying forex to ONLY commercial banks. The new rule takes immediate effect.
Should you be worried about the new CBN policy against the BDC?
How would this affect your business as an importation business merchant?
Don’t be surprised that the price of garri that’s produced locally will be affected, only economists can explain the relationship, as the imported goods head to the sky.
Since we started tracking the dollar to Naira exchange rate in August 2020, the Nigerian currency doesn’t show any sign of regaining its power against other major currencies soon.
The CBN boss Godwin Emefiele during a Monetary Policy Committee meeting at the Federal Capital Territory (FCT), Abuja on Tuesday, July 27, 2021, said the apex bank would retain the Monetary Policy Rate at 11.5 per cent.
How Much Has CBN Been Selling Dollar To The BDC Operators?
Before the latest sanction on the BDC operators, the apex bank, it was gathered, had been selling $1 to BDCs at the N395 rate.
Research also revealed that Emefiele-led CBN had been supplying each of the licensed BDCs $20,000 USD per week.
Emefiele expected and mandated the operators to sell $1 for N397 (margin of N2) or not more than N400, but the BDC operators were selling one USD as high as N505 at the time of the ban.
This means each of the BDCs was making at least N2,000,000 weekly per allocation from the CBN.
All operators abused the privilege. The system only made a few people richer to the detriment of Nigeria’s economy and average Nigerians on the street.
“The MPC made the decision to hold all parameters constant. The committee thought by unanimous vote to retain the Monetary Policy Rate at 11.5 percent.
“In summary, MPC voted as follows, one, retain MPR at 11.5 percent; retain the asymmetric corridor of +100/-700 basis points around the MPR; retain the CRR at 27.5 percent, and retain the Liquidity Ratio at 30 percent,” The Punch quoted him as saying
Why CBN Stopped Forex Sales To BDCs
Justifying the action of the apex bank, Emefiele, who is in his ‘second term’ as CBN governor said the decision is borne out of the fact that some BDCs are now “agents that facilitate graft and corruption in Nigeria. Although, he didn’t mention names.
“We cannot continue with the bad practices that are happening at the BDC market,” TheCable quoted him as saying.
He also said that several international organisations and embassies patronize BDC through the backdoor, thereby making BDC fail in their core role, promising to deal ruthlessly with Nigerian banks that indulge in such economic sabotage.
CBN’s Tentative Solutions
1) One of the measures Emefiele took was to immediately release a total of USD200 million to all commercial banks in the country to meet dollar demand for legitimate end-users.
2) To closely monitor forex transactions of the commercial banks
3) It directed all commercial banks to set up teller points for legitimate FX requests
Can Commercial Banks Forestall Sanity In The Forex Market?
Just like the former Deputy Governor of the CBN, Dr. Obadiah Mailafia, who expressed pessimism that banks will “corner” the dollars, I don’t trust the banks either.
They have not done enough to help in implementing the country’s forex policy.
In a report by The Punch, Mailafia, a former presidential candidate, alleged that the financial banks would sell the dollar at any rate they wish to their associates.
“How can you totally trust these commercial banks because most of them will want to corner the dollar for themselves and whatever is left, then they can now share with the market at a rate they want?” he was quoted by The Punch
Effects of the new order by CBN on businesses that depend on forex
While I believe that the CBN has all mechanisms within its power to track all illegal transactions, its decision to stop sales of dollars to the Bureau De Change Operators will have negative effects on the already debt-lurked economy.
Below are the effects of the apex bank’s decision:
- Dollars and other popular currencies will be sold at outrageous rates
- Scarcity Will Push Up Dollar to Naira Exchange Rate
- Certain People Will Become Billionaires
- Prices of Imported Goods Will Surge
- Banks Will Sell To The Powerful Class
- Job Loss
Dollars And Other Popular Currencies Will Be Sold At Outrageous Rates
By the new order, it means some questionable characters in Nigerian banks will now sell US dollars and other foreign currencies at outrageous rates to their partners among the BDCs operators to make outrageous profits.
The implication is that the BDCs in turn would transfer the cost to business owners who need dollars for their business.
Those who need dollars for legitimate transactions would bear the burden, in turn, the business owners would transfer the cost to the final consumers of the goods or services they render.
Scarcity Will Push Up Dollar-Naira Exchange Rate
The stoppage of sales of forex to BDCs means the CBN has caused an artificial scarcity. Those who already have some dollars in their vault will definitely hoard and begin to sell a minute portion of it.
At the time of updating this post, the naira was N660/665 (buy/sell) against 1 USD at the parallel market while CBN exchange rate it’s NGN415.75
I won’t be shocked if $1 becomes NGN700 before December and cruises to N1,000 before President Muhammadu Buhari leaves office in 2023.
It is also important to note that most of the commercial banks in Nigeria by nature hoard FX and push customers to buy from BDCs.
We should all be worried!
Certain People Will Become Billionaires
The fact is that some insiders knew that the CBN would make this decision before today. They had stocked their vault and it’s time for them to become billionaires.
During his press conference in Abuja, Emefiele revealed that CBN received about 5,000 applications for BDC registration monthly, meaning billions of naira are made by the operators.
Prices of Imported Goods Will Surge
It isn’t good news for those whose businesses depend on imported goods. Government officials have in the past deliberately painted Nigerian homemade goods to look inferior, as such the trend is now a pandemic among Nigerians.
Nigerians’ love for foreign goods is unimaginable, making more entrepreneurs embrace the importation business.
Quality shoes that can be bought in Aba market are imported from Italy, great Adire that are made in Abeokuta have little value because politicians subscribe to imported fabrics.
Till the new order lasts, importation merchants will pay more to buy dollars, however, the final consumers will bear the burden of the scarcity.
Banks Will Sell To The Powerful Class
As earlier stated, buying forex at Nigerian banks is complicated. It depends on who you know. If you know no one, you buy nothing, “it is not currently available” is all that you hear from Nigerian banks when it comes to forex.
Nigerian banks are part of the problem. CBN knows where to beam its searchlight on, it has the tools and mechanisms but seems to turn a blind eye on the main issue.
There is already fear among workers of BDC operators that they might lose their job. For instance, an operator in Abuja lamented how he would pay his staff.
“If the market continues like this, I wonder how I will pay my staff. It’s a huge dilemma for us” Daily trust quoted him as saying.
He alleged that CBN didn’t consult the Association of Bureaux De Change Operators of Nigeria before handing down such a drastic policy, predicting that the Naira will further crash.
It’s a brilliant decision by the CBN despite the temporary hardship it’s going to bring on average Nigerians on the streets, but how long can the apex bank sustain the policy? The apex bank did it around 2016/2017, why did it make a U-turn?
CBN made it known that BDC operators aid money laundering activities, which means the apex bank knows those who are involved but has the CBN named the culprits that are sabotaging the economic policy of the government?
By only supplying the banks, won’t it be a move to make banks richer and exploit Nigerians if measures are not put in place?
How sure are we that the banks will not operate like the BDC technically? We’ve seen how banks hoard forex just to sell to those who are ready to pay extra charges or ready to bribe officials on their forex desk.
To sanitize the forex market, CBN has to be vigilant, it has to put more measures in place to make its policies have a positive effect on average Nigerians on the street.
CBN should deploy its tools to monitor the activities of the commercial banks and publicly shame any bank found to have run against the rules of the apex bank. Issuing public speech will not solve the problem, pro-active sanctions will.
Let’s see how long the stoppage of sales of forex to BDC operators will last. One thing is sure: it’s going to infect temporary hardship on the struggling average Nigerians.
Again, I believe that Nigerians who need dollars for legitimate businesses and legit special needs will find their way around it.
Can companies buy and sell forex in Nigeria without a license with CBN?
No, a company must be registered unless you need forex on a large scale for major importation business which must be used for the purpose it was granted.
Also, note that trading in forex is legal in Nigeria provided you are licensed by the apex bank.