Following continuing fall in prices of crude oil, geopolitical crisis among the world largest economies and the United States’ normalization policy, the Central Bank of Nigeria (CBN) has taken a step in ensuring that its mandate as set out by the CBN Act of 2007 is achieved by ‘adequately maintaining the nation’s foreign exchange reserves and safeguard the value of the naira’.
To that effect, CBN Governor, Godwin Emefiele last month announced that the Apex bank would no longer sell Forex to licensed Bureau de Change (BDC) operators. He said CBN had; “observed that stakeholders in some of the subsectors have not been helpful in this direction. In particular, we have noted with grave concern that Bureau de Change (BDC) 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.”
The Apex bank also removed the ban placed on the deposit of foreign exchange domiciliary accounts. Commercial banks have also started allowing transfers for Forex Cash Deposit made into the domiciliary accounts of their customers through internet banking, mobile app by following the daily cumulative limit of $10,000 approved by the CBN.
Emefiele said; “the actions of BDC operators have resulted in high depletion of the nation’s scarce foreign exchange reserves and cannot continue, adding that the apex bank discovered that BDCs have become a conduit for illicit trade and financial flows in the country.
The BDCs were therefore directed to source their forex from the autonomous market as applicable in other nations. The CBN had said the apex bank have limited resources to cope with the over 2,700 BDCs currently operating, therefore making it is almost practically impossible to monitor their activities. It ordered operators that are not happy with this decision to return their licenses and get a refund of the N35 million cautionary fees deposited.
He declared; “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.”
According to the CBN, Nigeria is the only country where the central bank sells dollars directly to BDCs; the operators have failed in their responsibilities to help maintain stability in the market. The CBN has continued to sell US dollars at about N197 per dollar to the BDCs who in turn sell dollars to Nigerians as high as N250 per dollar at the parallel market. In spite of this, dollar was sold above 300 in January at the parallel markets.
In their swift reaction, the Association of Bureau de Change Operators of Nigeria (ABCON) through its Acting President, Alhaji Aminu Gwadabe stated that the decision of the CBN to stop dollars sale to them would have grave implications for the economy, adding that the decision would lead to emergence and taking over of BDCs operations by black market operators, which was dangerous to the nation’s economy.
The negative impact of the global economic meltdown on the developing countries’ economy particularly their foreign exchange rates and Gross Domestic Product, ensured Nigeria’s GDP growth according to the CBN decelerating from 3.9 percent in the first quarter of 2015 to 2.4 percent in the second quarter. It later picked up slightly to 2.8 percent in the third quarter of the year.
Prior to this period, the CBN “sells $60,000 to each BDC per week. This amount translates to $167 million per week, and about $8.6 billion per year. To curtail the reserve depletion, the Apex bank reduced the amount of weekly sales to $10,000 per BDC last year, which translates into $28.4 million depletion of the foreign reserve per week and $1.476 billion per annum.”
Ordinarily, the policy direction of the current administration encourages businesses to look inward rather than over-dependent on importation of goods. The case of ban of rice importation and other agricultural produce are seen as a step in the right direction. However, analysts have called on the government to readjust its economic policy direction to support local manufacturing of goods and services.
Developed nations such as Germany, England, Singapore and the US achieved their economic objectives via reduced importation, local manufacturing of goods and services and encouraging patronage of locally produced goods.
As at last month, global oil price dropped below US$30 per barrel. Experts have further envisaged that the price of oil may drop below US$20 in the year.
The Apex bank noted that the monthly foreign reserve earning of the CBN has fallen from over US$3 billion to US$1 billion. This followed increasing demand for foreign exchange by the importers.
Some of the salient areas where the CBN has decided to make forex available to Nigerians include; matured letters of credit from commercial banks, importation of petroleum products, importation of critical raw materials, plants and equipment as well as payment for school fees, BTA, PTA and other expenses. Also, the CBN said it receives about 150 new applications for BDC licenses monthly, showing that some people have identified a lucrative business venture that had become a threat to the Naira”.
Reactions has continued to trail the decision of the apex bank with some analysts saying the action of CBN would result in massive unemployment, increase in price of dollars and extensively affect the price of imported goods. However, financial analysts have said, the CBN should be allowed to regulate the forex market with its mandate and ensure that the value of Naira is protected and maintained in the interest of the nation.
Part of the development financial function of government is handled by the CBN to ensure that it provides finance initiatives through the formulation and implementation of various policies, innovation of appropriate products and creation of enabling environment for financial institutions to deliver services in an effective, efficient and sustainable manner. The initiatives are mainly targeted at agricultural sector, rural development and micro, small and medium enterprises. Some of the initiatives resulted in the establishment of Bank of Agriculture [BOA], Bank of Industry [BOI] and other Micro Finance banks across the nation.
In 1995, the Foreign Exchange Market was liberalised through the introduction of an Autonomous Foreign Exchange Market (AFEM) for the sale of foreign exchange to end-users by the CBN via selected authorised dealers at market determined exchange rate. In addition, Bureau de Change were once more accorded the status of authorized buyers and sellers of foreign exchange. The Forex Market was further liberalized in October, 1999 with the introduction of an Inter-Bank Foreign Exchange Market (IFEM).
The structure of the Nigerian foreign exchange market has witnessed tremendous changes and challenges since inception. The Second-tier Foreign Exchange Market (SFEM) was introduced in September, 1986, the unified official market in 1987, the autonomous Foreign Exchange Market (AFEM) in 1995, and the Inter-Bank Foreign Exchange Market (IFEM) in 1999.
Bureau de Change were licensed in 1989 to accord access to small users of foreign exchange and enlarge the officially recognised foreign exchange market. Exchange rates in the Bureau de Change are market determined. A parallel market for foreign exchange has been in existence since the exchange control era. It has been established that scarcity in the official sector and bureaucratic procedures necessitated the growth and development of the parallel market.
CBN Monetary Policy Mandate
The monetary policy mandate of the CBN is supported by various statutes of the bank such as; the CBN Act of 1958 as amended in CBN Decree No. 24 of 1991, CBN Decree Amendments 1993, No. 3 of 1997, No. 4 of 1997, No. 37 of 1998, No. 38 of 1998,1999 and CBN Act of 2007. Section 12 Sub-sections (1) to (5), CBN Act of 2007 (Amended). The Act positioned the bank to facilitate the attainment of price stability and support the economic policy of the Federal Government, through the formation of a Committee of the Bank known as the Monetary Policy Committee… The MPC committee performs the responsibilities of; formulating monetary and credit policy within the bank; the appointment of a member of the MPC pursuant to sub-section 2 (d) and (e) of this section, the remuneration, filling of temporary vacancies, qualification, tenure of office and disqualification shall be subject to the same terms as are stipulated for a Director under sections 10 and 11 of this Act.