According to Aminu Gwadabe, President of the Association of Bureau De Change Operators of Nigeria (ABCON), the Central Bank of Nigeria’s (CBN) foreign exchange policy has harmed the naira’s stability across all markets and produced a significant premium between official and parallel market rates.
In a conversation with financial journalists in Lagos, Gwadabe said there is now a big rate discrepancy in the markets of N300/$. This is with the official market rate at N430/$ and the parallel market rate at N730/$.
For him, it is an unconventional practise that lacks credibility and transparency. This is because he sells foreign exchange profits at a set rate of N430 per dollar while the open market rate is N730 per dollar. He said that one act promoted rent-seeking and currency substitution, which continue to harm businesses operating in the real sector and the economy.
He noted that the open market rate was about N501/$1 when the central bank decided to stop selling foreign exchange to Bureau De Changes (BDCs) in July 2021.
What is Forex?
The foreign exchange market is known as “forex.” It is a financial marketplace where buyers and sellers of foreign exchange may transact. The world’s largest market is Forex, which is expanding quickly. Forex had an average daily turnover of $6.6 trillion in April 2019, up from $5.5 trillion three years earlier, according to the Triennial Central Bank Survey. On weekdays, Forex may be traded worldwide 24 hours a day without the interference of a centralised authority.
Nigeria reportedly boasts the fastest-growing middle class in Africa and has the continent’s largest population and economy. Nigerians, particularly the young and educated, are becoming more interested in Forex due to the country’s consumer boom. Nigeria is thought to have Africa’s second-largest forex retail market, behind South Africa.
Why is Naira Crashing?
With many Nigerians not fulfilling their desires for invisible transactions and the regulator not demonstrating any commitment to doing so, the naira’s value against the dollar dropped dramatically more than a year later.
According to Gwadabe, the CBN continues to execute its exchange rate policies primarily via small retail exchange institutions (BDCs). Therefore, the regulator and the general public must continue to support BDCs’ contributions to exchange rate stability.
He said it might be accomplished by increasing their procedures’ automation and offering additional transaction channels to maintain a stable pricing equilibrium and eliminate speculation, rent-seeking, and currency substitution.
“I am quite certain that Nigeria would, in the not too distant future, appreciate a stable exchange rate and the availability of currency in the local economy,” he said. “As long as the proper individuals receive such responsibility for the execution of government policy.”
Scarcity of Forex in Nigeria
He said that the CBN Governor, Godwin Emefiele, has attempted to enact several policies outside the traditional money supply. These policies were at odds with the reality of the market.
Gwadabe praised the Naira-4-Dollar programme, which offers an N5 bonus for every $1 in remittances from the diaspora and an N65 rebate for every dollar in non-oil export proceeds and other incentives. Still, he added that such policies needed a complete makeover with the involvement of all stakeholders.
Gwadabe insisted that the naira will continue to lose value when traded for US dollars, adding, “The question on everyone’s lips is: Are the banks not having the allocation for invisible transactions? “. Gwadabe added, “I am not a prophet of doom and a student of ongoing naira depreciation, but unless fundamental goodwill and courage are demonstrated, the naira will continue to suffer loss in exchange for the greenbac.”
New CBN Policy on Foreign Exchange
In response to a query on the sources of currency used by BDCs, he said that although some BDCs are fortunate enough to operate at international airports and other off-table transactions, the bulk of them are out of business since there are few or no other sources available.
According to Gwadabe, a licenced BDC cannot access oil earnings, non-oil proceeds, or remittances from outside. Margin checks and broader regulatory permits for mergers are required. He claims that the typical BDC operator with a CBN licence is terminally ill and on the verge of extinction.
Gwadabe thinks it’s time to promote competition and cooperative interactions between regulators and stakeholders to support the naira.
CBN Forex Policy
Because of its susceptibility to leadership corruption, lack of market competition, and predominance of unregulated players, he said that the naira is the hardest currency to forecast in the whole globe.
Despite the suspension of FX sales to BDCs, Gwadabe hinted that the apex bank continues to monitor the operations of the BDCs. And has begun nationwide training for the operators to make them aware of the risks associated with money laundering, financing terrorism, and spreading mass-destructive weapons of mass destruction. Gwadabe said that the central bank insisted that the suspension of FX sales to BDCs did not result in revoking the licenses, and this is because the operators remained subject to CBN rules.
CBN Dollar Policy
“However, the suspension has caused an increase in the actions of unregulated space players, a shortage of FX liquidity at the retail end of the market, and the consequent volatility of exchange rates. The self-regulatory measures that ABCON supports are a must to address the ongoing exchange rate volatility. According to him, ABCON has always taken the initiative to ensure BDCs engage in and adhere to international standards.
According to Gwadabe, this is the ideal moment for Nigeria to adopt the competition model for its sizable and long-lasting remittances from the diaspora.
To improve liquidity and price discovery of remittances from the diaspora, he encouraged the central bank to use the capabilities and expertise of the BDC operators.
He said, “We shall continue to fight for this agitation of stakeholders.” We firmly advise the CBN to adopt our roadmap and foster stakeholder involvement.”
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