CBN halts direct sales of FOREX to Bureau de Change operators

Godwin Emefiele
CBN Governor, Godwin Emefiele used to illustrate the story.

The Central Bank of Nigeria, CBN has stopped sales of foreign exchange (FOREX) to Bureau de Change (BDC) operators.

The CBN governor, Godwin Emefiele, who announced the decision in Abuja on Monday, accused the operators of contributing to the huge hemorrhage on the country’s scarce foreign exchange reserves.

Apart from profiteering from the FX market, regardless of prevailing official and interbank rates, the BDCs were equally accused of financing unauthorized transactions with foreign exchange procured from the CBN.

In addition, the BDCs were said to have subtly subverted the monetary and cashless policies by making the dollar dominate the Naira, while transferring the burden on the CBN and the commercial banks.

Mr. Emefiele, who said the BDCs served as “a conduit for illicit trade and financial flows,” said the operators would henceforth source their foreign exchange from autonomous sources.

The CBN governor, who expressed “grave concern” at the rent-seeking behaviour of the BDC operators, said they abandoned the original objective they were established “to serve retail end users who need US$5,000 or less.”

Instead, he said the BDCs have become wholesale dealers in foreign exchange to the tune of millions of dollars per transaction, often using “fake documentations, like passport numbers, BVNs, boarding passes, and flight tickets to render weekly returns to the CBN.”

Mr. Emefiele, who noted that Nigeria remained the only country in the world where the Central Bank still sells dollars directly to BDCs, expressed regrets that the operators failed to reciprocate this gesture, by not helping maintain stability in the market.

While the CBN has been selling FX at official rate of N197 per dollar to the operators, they have been making excessive profits by selling to Nigerians for as high as N250 per dollar.

The CBN governor explained the huge profits had encouraged the proliferation of BDC operators from just 74 in 2005 to about 2,786 today, with about 150 fresh applications for BDC licenses pending approval every month.

The CBN boss said since the drop in crude oil prices from a peak of $114 barrel in July 2014 to about $33 per barrel in January 2016, the country’s foreign reserves has continued to suffer great pressures from “speculative attacks, round tripping and front loading activities by actors in the FX market.”

The fall in crude oil prices, he pointed, had resulted in a massive decline in CBN’s monthly foreign earnings from about $3.2 billion to about $1 billion at the moment.

With about $60,000 sold every week to each BDC, the CBN said saw about $167 million sold per week, and about $8.6 billion per year.

As at June 2014, the CBN governor said stock of FOREX reserves, which stood at about $37.3 billion, had declined to about $28 billion today.

To curtail the reserve depletion, Mr. Emefiele said the CBN had reduced the weekly sales to $10,000 per BDC, resulting in a foreign reserve depletion of about $28.4 million a week and $1.476 billion a year.

Regardless, he said the demand for foreign exchange by mostly domestic importers rose significantly, with the country’s average import bill then at N148.3 billion per month.

Although oil prices have dropped to less than $35 per barrel at the moment, the country’s average import bill for the first nine months of 2015 stood at about N917.6 billion per month.

To check further depletion of the country’s reserves, he said the CBN resolved to prioritize allocation of foreign exchange to four critical areas of need.

They included matured Letters of Credit (LCs) from commercial banks; importation of petroleum products and critical raw materials, plants, and equipment, as well as payment of school fees, basic travel allowance, BTA, and related expenses.

In spite of the difficulties the CBN was facing, Mr. Emefiele said the BDCs totally disregarded the measures adopted to maintain the country’s FX reserves and safeguard the value of the Naira.

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