The Central Bank of Nigeria (CBN) unveiled fresh operational procedures for providing foreign exchange to Bureau-De-Change (BDC) operators within Nigeria on Friday, August 17th, 2023. Marking a U-turn in Nigeria’s forex policy that previously banned the sale of Forex to BDCs.
The mechanisms announced in the circular released by the CBN include,
“The spread on buying and selling by BDC operators shall be within an allowable limit of -2.5% to +2.5% of the Nigerian Foreign Exchange market window weighted average rate of the previous day.”
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“Mandatory rendition by BDC Operators of the statutory periodic reports (daily, weekly, monthly, quarterly, and yearly) on the Financial Institution Forex Rendition System (FIFX) which has been upgraded to meet individual Operator’s requirements.”
Background Story
Back in July 2021, the suspended CBN Governor, Godwin Emefiele stopped the sale of forex to BDC operators citing that BDC operators were making efforts to dollarise the Nigerian economy.
At the time, Emefiele said about BDC operators,
“They have turned themselves away from their objectives. They are now agents that facilitate graft and corruption in the country. We cannot continue with the bad practices that are happening in the BDC market.”
After the move by the CBN in 2021, the gap between the parallel market rate and the I&E window rate began to widen, reaching about N300 in 2022. Thus leading to imbalances in Nigeria’s foreign exchange market, and calls for the CBN to eliminate the multiple exchange rate regimes.
With the suspension of Godwin Emefiele as the CBN Governor came some reforms in the Forex market, including the floating of the Naira to unify the exchange rate market. Despite initial success, the effort of the CBN has not achieved complete efficacy, as the disparity between the parallel market rate and the I&E Window rate still exists.
The CBN’s decision to recommence the sale of foreign exchange to Bureau-De-Change operators is a component of broader reforms aimed at promoting integration and reducing disparities between the parallel market and the official I&E Window.
During the Arbiterz Naira Conference 2023, Aminu Gwadabe, the President of the Association of Bureau-De-Change Operators of Nigeria (ABCON) asserted the importance of incorporating the registered BDC operators when shaping forex market policies.
He noted at the conference, “If you look at the I&E window, it’s supposed to be a three-legged market, where the banks, the Central Bank, and the Bureau-De-Change Operators are the major participants. However, there is exclusion.
Also Read: Naira Appreciates at I&E Window After Another CBN Intervention
“When policies are made, the stakeholders that know the system are not carried along. It’s necessary to carry the stakeholders along.”
In reacting to the new policy, Mr Aminu Gwadabe expressed a level of satisfaction, noting in an interview with The Guardian, “We are happy with the move to democratise the process, there are so many opportunities, we have our prayers to them, which is they should not allow us to be only cash-based BDCs.”
He further noted that the CBN reforms should involve stakeholders such as the BDCs, stating that they want to be involved in money transfer operations. Gwadabe noted, “The BDCs in other climes are doing outward and inward money transfer transactions. Cash is getting less prominence. Licenced online outlets in other climes are even the ones carrying out the bulk of the transaction, and that is why the acting governor (Folashodun Adebisi Shonubi) is complaining he doesn’t see the inflow. How can you see inflows when all transactions have not moved digitally? They are still looking at the manual system of reporting. It is not possible to see many inflows when you rely on cash-based transactions.”
While there is relief in the market that the move by the CBN would help to introduce competition in the market, there is a worrying trend of policy inconsistency on display by the apex bank. Having initially involved Bureau-De-Change operators in the foreign exchange market, subsequently excluding them, and now reintroducing them with stricter measures in place.
Doubts are also in place about the effectiveness of some of the operational mechanisms contained in the circular released by CBN. For example, the guidelines note that BDC operators are allowed to charge between 2.5% less and 2.5% more than the weighted average displayed on the CBN website. The BDC operators are also mandated to make daily, weekly, monthly, quarterly, and yearly reports on the FIFX system on CBN’s website.
The guidelines also note that “non-redition of these returns would attract sanctions, which may include withdrawal of operating license.”
With these measures put in place to effect control over the 5,687 registered BDCs in Nigeria, the question remains, how about the black market players? At the Naira Conference, Mr Gwadabe noted, “There are over a million unlicensed parallel market operators in Nigeria.” Will the new regulations not be more incentives for BDC operators to use backhanded tactics to promote even more arbitrage?
Also Read: CBN Officially Floats the Naira
Back in 2016, when the CBN stopped the weekly FX allocation to licensed BDCs, it was reported that around $10 billion in foreign exchange went to these unofficial “currency hawkers” in just 4 months. Now, with limits on the profit margin for licensed BDCs, could these licensed BDCs end up acting as intermediaries for those currency hawkers? Information provided by AbokiFX indicates that on Monday, August 21st, the buying rate for BDCs was around N850/$, and the selling rate was N880/$. In contrast, the CBN’s weighted average rate was approximately N762/$, suggesting that the CBN’s policy had not yet come into full effect.
