THE Central Bank of Nigeria (CBN) rose in stout defence of the value of the Naira last week as it expressly proscribed the importation of foreign currencies by banks. This definitive move came on the heels of the regulator’s withdrawal of the operating licences of 20 Bureau de Change operators (BDCs) found to have purchased and sold huge sums of United States dollars with no documentations to show details of the transactions.
The new restraint on forex imports is not unconnected with the persistent free fall in the value of the Naira. It came against the background of growing concerns on the “dollarisation” of the economy, which is believed to be fueled by the current build-up in political activities in the country and increasing reports of foreign exchange demand pressures from domestic sources. However, commercial banks can still bring in foreign currencies on the express approval of the CBN. The new policy, which takes immediate effect, was announced by the CBN Deputy Governor in charge of Economic Policy, Dr. Sarah Alade.
We welcome this intervention by the CBN. It will save our national currency from being devalued against major foreign currencies in business transactions. What the apex bank has done is within the purview of its statutory responsibility to regulate the inflow and outflow of both the national and foreign currencies. It is the duty of the apex bank to ensure the stability of the exchange rate in the country. The truth is that there is nowhere in the world that a national currency is left completely for market forces to determine its value.
This ban on the importation of foreign currencies is, therefore, long overdue as uncontrolled currency importation encourages money laundering and round tripping. These expose our economy to external threats and likelihood of dominance.
The latest decision by the CBN did not come as a surprise. Only recently at the 234th meeting of its highest decision-making organ, the Monetary Policy Committee (MPC), the CBN Governor, Sanusi Lamido Sanusi, said the regulatory authority would put in place strong foreign exchange (forex) policies to checkmate arbitrage and “round-tripping” by financial institutions, which have weakened the value of the n naira in recent months.
For instance, last month alone, the CBN reportedly sold $2.8 billion to dealers at the regulated Wholesale Dutch Action System (WDAS) in order to stabilise the Naira. This represents an increase of 17 percent, compared with the $2.4 billion offered by CBN in August, prompting the suspension of the WDAS and the re-introduction of the Retail Dutch Auction System (RDAS), which is expected to check round tripping of foreign exchange purchased at the CBN official window to unauthorised channels.
It is in this connection, too, that we commend the recent circular from the CBN mandating all Deposit Money Banks (DMBs) to redeem all inward money transfers in naira to the recipients at the prevailing inter-bank forex rate. This is in conformity with best practice. In the same vein, the banks would only sell forex to Bureau De Change (BDC) operators subject to a maximum of $250,000 per week. The job, however, will only be half-done if the CBN overlooks other realities that are also eroding the value of our national currency.
The apex bank was spot-on when few months ago, it froze the selling of cash to the Bureau De Change operators. Ordinarily, BDCs serve as money service outlets through which their customers exchange one form of foreign currency for another. But, the operators have deviated from the original noble concept and objective, and are now allegedly manipulating the system at the detriment of the economy.
As a result of this, as the CBN Governor said, the “American dollar is gradually becoming Nigeria’s second national currency”, a situation which has become a source of great worry to the Federal Government. About 70 percent of the dollars that people buy from Bureaux de Change are reportedly not used for transactions outside Nigeria. They are neither linked to production nor importation of goods and services. Available statistics at the disposable of the CBN show that many commercial banks and BDCs were, until the latest ban on importation of foreign currencies, moving dollars from one part of the country to the other.
This unethical practice is detrimental to the national currency and the economy in general. It has, therefore, become imperative for the CBN to checkmate such infractions that are capable of undermining the stability of the economy and the value and image of our currency.
Indeed, the vulnerability of our economy and currency to fluctuations requires constant vigilance. Failure to protect the value of the Naira will ultimately put Nigeria’s economy in harm’s way.
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