A new set of fresh regulations on foreign exchange (forex) has seen the Central Bank of Nigeria (CBN) ending the programme of funding bureaux de change weekly.
The scheme which has been in operation for the past 11 years cost the CBN $8.6 billion yearly based on $60,000 per operator.
But the apex financial regulator has permitted commercial banks to begin accepting cash deposits of foreign exchange from their customers.
The decision, according to CBN, is not intended to be punitive but rather to ensure it is better able to carry out its mandate effectively and efficiently, which guarantees preservation of the nation’s scarce commonwealth.
However, the operators, under the aegis of Association of Bureau de Change Operators of Nigeria, said while it would appreciate the end of the programme, it would not accept the blanket generalisation of the group as bad. The Acting President of the group, Alhaji Aminu Gwadabe, told The Guardian that the action of the CBN amounted to a devaluation of the currency, as the dollar would soon be exchanged for as high as N400.
He said that the lot of the BDC operators had only been woeful, as its total mandatory deposit to CBN estimated to be N150 billion, only earned three per cent, while commercial banks had at various times earned 11 per cent.
To avoid further depletion in the reserves, the CBN also said it had taken a number of countervailing actions including the prioritisation of the most critical needs for foreign exchange.
These, in order of priority, include the provision of foreign exchange to matured letters of credit from commercial banks; importations of petroleum products; critical raw materials, plants, and equipment; and payments for school fees, basic travel allowance and personal travel allowance, and related expenses
The CBN governor, Godwin Emefiele, while addressing journalists in Abuja, yesterday, said the BDC operators would now source their foreign exchange from autonomous sources, which it would monitor to ensure that no operator violates anti-money laundering laws.
Emefiele said the decision had become necessary due to the financial burden being placed on the apex bank and the limited foreign exchange reserves.
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. In order to curtail this reserve depletion, we have reduced the amount of weekly sales to $10,000 per BDC, which translates into $28.4 million depletion of the foreign reserve per week and $1.476 billion per annum.
This is a huge haemorrhage on our scarce foreign exchange reserves, and cannot continue especially because we are also concerned that BDCs have become a conduit for illicit trade and financial flows,” he said.
Besides, CBN accused the operators of violation of the rules of engagement, with the majority only interested in widening margins and profits from the foreign exchange market, regardless of prevailing official and interbank rates.
It said that following the drop in crude prices from a peak of $114 barrel in July 2014, to as low as $33/barrel in January 2016, the country’s reserves had suffered great pressure from speculative attacks, round tripping and front loading activities by actors in the market.
This fall in oil prices has depleted CBN’s monthly foreign earnings from as high as $3.2 billion to current levels of as low as $1 billion. Still, the demand for foreign exchange by mostly domestic importers has risen significantly, even more than when oil prices was around $50 per barrel for an extended period of time in 2005.
The net effect of these combined forces unfortunately is the depletion of our foreign exchange reserves. As of June 2014, the stock of Foreign Exchange Reserves stood at about $37.3 billion, but has declined to around $28.0 billion as of today,” he said.
The bank chief said that despite its continued sale of dollar around N197 to these operators, they had in turn become greedy in their dealings with ordinary Nigerians, selling as high as N250 per dollar.