Amid the protracted crisis in the foreign exchange market, typified by record depreciation of the local currency, naira, the President of the Association of Bureaux de Change Operators of Nigeria (ABCON), Aminu Gwadabe, has listed Path to saving the currency and bringing stability into the foreign exchange market.
The crisis in the currency market has worsened in the past two months with current exchange rate at N720/$.
With Inflation, which has eroded the purchasing power of consumers, only the ‘fittest’ can now survive in Nigeria.
The National Bureau of Statistics said Nigeria’s inflation rate in the month of June 2022 increased to 18.60 percent on a year-on-year basis, 0.84 percent points higher compared to the rate recorded in June 2021, which is 17.75 percent
In response to metrobusinessnews.com inquiry on his thought on the recent clampdown on BDCs in Abuja and ways forward, the ABCON boss called for adoption of a transparent floating exchange rate, which will make the market determine the true value of the naira and as well narrow the growing exchange rate disparity between the official rate hovering between N426-30/$ and parallel rate between N710-N720/$.
Gwadabe believes that the integration of the BDCs into the remittances business which he considers as the low hanging fruits, for now, would do good to the economy.
The current criminalization of their activities and clamping down on them, according to him will not solve the problem, more so as the major challenge is from the supply side, that requires the services of the operators.
“My thought on the continuous depreciation of the naira is the intensity of our psychological ostentatious preference for currency substitution, which is making the naira dancing naked in the market square.
The naira is facing a war of attrition as a result of fixed exchange rate versus flexible exchange rate regime in the market.
The lack of any vibrant sources of foreign exchange inflows will continue to make it difficult to ensure stability in the market.
From the Cbn fact sheet all our sources of foreign exchange inflows are in serious dilemma with the exception of the remittances that are also not fully harnessed.
The clampdown on the BDCs is like treating the symptoms and leaving the causes of the pandemic.
The BDCs are important part of the financial eco system and an effective transmission mechanism of the CBN policy direction on its core mandate of exchange rate stability.
The BDCs have provided strong laboratory tools for CBN over time in terms of exchange rates issue.“
Consequently, he made some suggestions, including, the fact that, “The policy makers and regulators should adopt a floating exchange rate as against the current peg or crawling exchange rate regime to disincentivize currency substitution,dollarization, rent seeking, monopolies and price disequilibrium.
Over time the adoption of both the peg and crawling exchange rate regime did not salvage the situation.
Reason being that the absence of consistent liquidity shortages made the peg regime ineffective while the crawling exchange rate regimes suffer from the interplay of fixed versus flexible exchange rate regime.
I therefore suggest floating exchange that will be transparent and achieve price discoveries in the medium term and long term liquidity drive.
Also in dealing with the BDCs sector, the regulator and the security agencies should focus on friendly approach, formalization and integration to best global practices.
The BDCs should be considered as agents of cash pick up for the international monetary transfer operators by breaking the existing monopoly that characterized the space instead of generalization of criminalization and throwing the baby and the bath water.
The BDCs have over time remained the most effective laboratory tool and transmission mechanism of the CBN policy direction in terms of their core mandate of exchange rate stability.
Using the BDCs will go along away in providing liquidity in the retail end foreign exchange market and remove the vicious cycle of Presure on the local currency.
We should make policies that would ease the burden of small scale enterprises through setting up of venture capital that will understand their specific needs for increased productivity and youth employment.
Finally the issue of security should be dealt with seriously rather than lamentation and blame game.“
Last year, the Central Bank of Nigeria (CBN) discontinued the sale of foreign exchange (FX) to BDCs and handed over the retail market to commercial banks.
The banks are currently battling with their customers on what the later consider as ‘constant broken of ptomidrs’, which are however not within the power of the banks.
CBN rations the FX to banks, and the banks, would naturally ration to their long list of customers waiting for the elusive dollars.
However, this was against the campaign by the association for mainstreaming of BDCs into the FX formal market and giving them a role in the remittance business as a way of deepening the market.
CBN FX operational manual defines BDCs as small retail end institutions licensed to carry on the business of selling personal/business travel allowance (P/BTA), overseas school fees, and medical bills payment abroad among others at the critical retail end of the market.
Some of the chief executives of BDCs that spoke with the platform under anonymity align with the views of their president, urging, the CBN to be rather alive to its responsibilities and mandate.
According to one of them, “CBN should leverage the robust network of BDCs to stabilise the market and achieve its exchange rate convergence plan, rather than, ‘witch hunting’.
He added that hasty generalisation that BDCs are responsible for the crisis in the market, as well as other accusations, are not in the interest of the economy and growth of the market, stressing that it is time to strengthen the sub-sector.“
Another CEO stated that CBN should realize that BDCs had over the past years provided policy makers with guidance and advice to achieving exchange rate stability and price equilibrium goals, which, according to him, worked well because the CBN, then had confidence in them.
According to him, the onus lies with CBN to see the BDCs as partners for economic growth and sustainability.
But last week, operatives of the Economic and Financial Crimes Commission (EFCC) raided Wuse Zone 4, Federal Capital Territory, Abuja, over allegations that some Bureaux De Change (BDC) operators are mopping up foreign currencies.
Wuse Zone 4 is the hub of many BDC operators in Abuja.
According to reports, the invasion was a covert operation to “dislodge currency speculators who are alleged to be massively mopping up available foreign currencies”.
A source had told Channels Television that the raid was a result of weeks of surveillance in which agents of the EFCC have been monitoring the activities of most of the BDC operators in the axis.
The source further said the agency is working on intelligence that some forces with massive naira inflow have mobilised resources and are busy buying up available foreign currencies, especially US dollar, to either hoard or smuggle the same out of Nigeria.
It was further learnt thst similar operations would carried out in some major cities like Lagos, Port Harcourt, Kano anytime soon
The value of the Naira to the US Dollar depreciated heavily by N13 or 1.8 per cent at the Peer-to-Peer segment of the foreign exchange (forex) market on Thursday, July 28, trading at N720/$1 compared to N707/$1 on the previous Wednesday, confirming the crisis in the FX market.
Also, at the parallel market, the Nigerian Naira lost N5 against the greenback to sell for N710/$1 compared with the preceding day’s N705/$1. At midday, the exchange rate was N715/$1 and by evening, it closed at N710/$1.
Meanwhile, the local currency found succour in the Investors and Exporters (I&E) window of the FX market, appreciating by N3.80 or 0.88 per cent to close at N426.20/$1 versus Wednesday’s value of N430/$1.
This came as the daily turnover published on FMDQ Securities Exchange stood at $129.13 million, 1.9 per cent or $2.44 million higher than the $126.69 million achieved the day before.
In the interbank segment of the market, the Naira witnessed a downward movement of N3.07 against the Pound Sterling as it closed at N501.73/£1 versus the preceding day’s N498.66/£1 and against the Euro, the local currency lost 56 Kobo to close at N422.19/€1 in contrast to Wednesday’s rate of N421.63/€1.