…Sets stage for battle with finance ministry
The Minister of Finance has overall responsibility for the Nigerian foreign exchange market structure under the Foreign Exchange (monitoring and miscellaneous) Act of 2004 and this could set the stage for a fierce rivalry with the Central Bank of Nigeria (CBN) according to dealers and lawyers.
They also say the CBN has no legal powers to control or peg rates for transactions in the interbank foreign exchange market as the apex bank is currently doing, according to publication in Business Day
Citing the Foreign Exchange (Monitoring and Miscellaneous) Act 2004 (FEMM) they note that the “Overall regulatory power on the foreign exchange market structure lies with the Ministry of Finance and not the CBN.”
The FEMM Act establishes the Autonomous Foreign Exchange Market (AFEM) where transactions in foreign exchange shall be conducted. Section 40 of the FEMM Act defines the market as “a market in which the Authorised Dealers, Authorised Buyers, foreign exchange end-users and the Central Bank are participants and may include any other participant that the Government of the Federation may, from time to time, recognise.”
The FEMM Act makes the CBN a participant in the foreign exchange market just like any other participant including the banks. Legal experts argue that because the FEMM is a law, a circular from the CBN cannot suspend it. Another law duly passed by the national assembly can only repeal FEMM Act. This makes CBN’s current control of the activities in the market illegal as it is only meant to participate in the market and not control, especially prices in the market by fiat
The FEMM act clear states that “the rate at which transactions are executed in the market shall be the rate mutually agreed between the applicant purchaser and the Authorised Dealer or the Authorised buyer” which makes CBN’s current attempt to peg rates at which the dollar is exchanged with the Naira illegal.
Olisa Agbakoba, human rights activist and senior advocate of Nigeria (SAN) believes that “CBN has no power to regulate the interbank market as this is a matter for the pull of supply and demand.”
According to Robert Omotunde, investment research, Afrinvest, “Beyond looking at the legal implications of the control and peg on the foreign exchange market, the whole idea of control is undermining the efficiency of the foreign exchange market and the economy as a whole. The economy took some beating in June when the FX market was supposedly liberalised, leading to massive depreciation of the Naira from N197/US1$ to N315/US1$. The gains of a truly flexible FX market have been unfortunately missing, given the blatant control of demand, as well as price fixing, acts void of a market driven price formation mechanism. The controls have fueled further future expectation of Naira depreciation or contextually better put, devaluation (since the much repelled market controls are still held by the CBN). We are of the view that the CBN needs to renege on this new “anti-market” drive if indeed Nigeria is open for business. More importantly, the CBN needs to be pro-market to unify the already fragmented foreign exchange market for the good of the economy.
But Players in the interbank market and some eminent lawyers have continue to express concern over the CBN’s insistence in controlling the exchange rate of the naira, a situation that has led to a dry up of dollar supply into the foreign exchange market. The CBN has also imposed sanctions against banks for selling the dollar above certain rates despite the fact the FEMM Act is clear that rates shall be set based on an agreement between a buyer and a seller.
The CBN has taken its quest to control the market even further with the recent instigation of the Department of State Security (DSS) to clamp down on BDC operators who sell the dollar above its approved official rate. The attempt to clamp down on BDCs and black market operators has led to a freeze of dollar supply in that segment of the market also.
BDC operators now quote the CBN rate but would almost likely tell you that they have run out of dollars to sell. Sources tell BusinessDay that most businesses are now being done over phone only with those they know at prices well above the CBN official rate, which is true reflection of the demand in the market.
Only two BDCs were selling dollars at the rate of N408, when BusinessDay visited the Murtala Mohammed International Airport on Sunday evening. Others claimed that they had no dollars to sell. The only BDCs selling dollars were Sulah Bureau De Change and Tago Bureau De Change, who sold dollars at the rate of N408. IBRO resources, which sold dollars at the rate of N400 on Friday, said it no longer had dollars to sell. Travelex was selling at N385.
Other licenced BDCs; Bossy Clean Exchange, Deravine BDC, Hass BDC, Kings BDC and Vida SEM BDC displayed on their counters that they sell at the rate of N408 to a dollar and buy at the rate of N400 to a dollar but said they did not have dollars to sell at the moment.