CBN battles forex market dark forces

Naira depreciates further in the black market

As external sector waxes stronger

At the backdrop of speculations that some powerful forces are behind the recent controversies over the exchange rate policy and the Naira value, the local currency recorded significant depreciation last week.

The Naira traded largely stable at N414.73/$1, in the official Investors and Exporters (I&E)  window, up from N413.83 at the beginning of the week.

But the exchange rate at the parallel market closed at N574/$1, maintaining the wide premium it began since the removal of the Bureau de Change, BDC, involvement in the trading of CBN sourced forex.

This is despite the significant increases in forex supply through the Central Bank of Nigeria’s interventions at both the interbank and the Investors and Exporters window.

The latest depreciation is also coming while all the positive indicators of a stronger Naira came on stream including the successful Eurobond floatation which shored the nation’s external reserves, as well as the steady rising of the oil price in the international market which meant further boost to the nation’s forex earnings.

Many analysts believe that the continue adverse reactions from a section of the forex market despite these positive trends reinforces the notion that some form of speculative attack or outright sabotage is in the mix of the various contending forces in the forex market.

But the mood at the apex bank seems to be calling the bluff of the forces arrayed against its policy of prudential forex market and reserves management in line with global best practices.

The CBN Governor, Godwin Emefiele, had, at the backdrop of the sharp depreciation of the Naira in the parallel market, stated that the only rate he recognises is the I&E window rate, citing that the black market rate is fixed by illegal forex operators.

According to him, “The only exchange rate I can recognise today is the I&E window rate, which is the rate we expect everyone that wishes to procure foreign exchange to use.”

“I don’t recognise that there are any other rates in the market.”

The response of the CBN governor shows that the government would not shift its resolve and lift the ban on the sale of Forex sales to BDC operators anytime soon as many had expected.

The CBN had been selling $20,000 per week to each of the over 5,000 BDCs across the country.

The apex bank, however, said it will henceforth channel weekly allocations of dollar sales to commercial banks to meet legitimate foreign exchange   demands, adding that   processing of application for new BDC licences has also been suspended.

Launching the war

Earlier in July 2021 Monetary Policy Committee, MPC, meeting which followed the ban on BDC’s participation in the CBN sale of forex, Emefiele had rationalized the ban.

He stated: “It is important for us to note that in line with the CBN Act, we have   a mandate other than pricing and monetary stability   to ensure we maintain the reserve of the country as well as the exchange rate of the country. Nigeria remains one and the only country selling foreign exchange to BDCs but because of pressure and requests, we have continued to do this to see that those who operate in this market   are able to do so because we   see it as an opportunity to create business for them.

“We believe that   as long as they do this, they do it to the benefit of the economy but we have become very disappointed   and concerned about the activities of the BDCs in Nigeria. We are unhappy that rather than sell about $5,000 to travellers, they have turned themselves to   agents that facilitate graft and corruption in Nigeria and we   believe that this cannot be tolerated.

“The CBN has also been awashed with complaints   about the modus operandi of BDCs and   it is becoming so disgraceful that we feel that at this stage we need to   take a decision.

“There is evidence of prevailing ownership of several BDCs by the same promoters to procure multiple foreign exchange from the CBN. Several international organisations, embassies patronise BDC through illegal forex dealers to fund their institutions.

“The Committee deliberated extensively on this, and this is an issue that even the authorities had engaged the CBN on   and we tried our best to see how we could defend the BDC operators. Even our leaders who constitute political authorities have raised concerns about the modus operandi of   BDC operators in Nigeria. We did our best to defend them,    that they play certain roles in our economy.

“At this stage, we cannot no longer continue, we are carrying political authorities along because they themselves had wanted this to stop. Now that we can no longer continue because of the illegal activities, and corrupt tendencies exhibited   by the players in the sector, we believe this must stop and we have   stopped it henceforth.

“We know that there are some people who legitimately would want to go to them to buy dollars, we are saying they should go to their bank and validate minimal documentation and they will attend to you.   Indeed they will transfer your money electronically, in line with our cashless policy; they do not need to give cash. We cannot be talking about cashless naira and be supporting cash in dollars, an attempt to dollarize our economy.   We cannot continue with sharp practices that are going on there. If you know you have a legal transaction to make,   go to your bank, you do not need BDC given the form they were found in recent times.

“What happens in that (parallel) market as insignificant as the volume is, they are all perpetrating corruption, exchange of bribe money instead of taking naira in big bags, they choose to collect dollar in small bags, we will not facilitate that for you again, it is not what CBN should support.”

MAN backs CBN’s forex policy

As its policy fundamentals have been since the Emefiele regime, the apex bank have prioritized the real sector. The position of the organized private sector has been in support of the CBN’s latest forex policy.

The Manufacturers Association of Nigeria (MAN) had described the decision of the CBN to suspend the supply of forex to BDCs as a positive development.

MAN stated that while the apex bank’s policy would result in a temporary increase in the exchange rate, the Nigerian economy would benefit in the long run.

Mansur Ahmed, the president of MAN, who made the association’s views known at the last annual general meeting of the association’s Kwara and Kogi state branch, stated: ‘‘In the last few months, there have been efforts by the central bank to control the flow of foreign exchange for us to get more forex in the manufacturing sector.

“The decision by the CBN to withdraw supply of foreign exchange from the Bureaux De Change is one that the manufacturing sector is fully in support of.

“Foreign exchange is not a commodity that should be taken to the market and traded. Its availability is intended to allow those that are producing goods and services to bring in the necessary materials and equipment required in order to produce those goods and services at affordable prices.

“Clearly, that action of the CBN on foreign exchange is most welcome even if it is belated. In this regard, I affirm the support of MAN for this policy as well as other policies in the infrastructure sector executed by the federal government.”

MPC reinforces forex policy

Meanwhile, the MPC’s 138th meeting, previous week at the backdrop of the renew pressures on the Naira reinforced the position of the apex bank.

It stated: ‘‘On the management of the exchange rate, the Committee applauded the Apex Bank for improving foreign exchange supply in the economy to meet legitimate business and consumer demand.

‘‘Members of the MPC thus, urged the Apex Bank to take further steps to restrict the activities of unauthorised and illegal dealers in the foreign exchange market, stating that all foreign exchange transactions must be conducted at the I&E window to ensure transparency and stability.

‘‘The Committee, thus, called on the Bank to intensify surveillance over foreign exchange sales and utilisation by commercial banks and customers, to ensure that operators adhere to stipulated guidelines set by the CBN.

‘‘The Bank thus, maintains its resolve to continue to restructure the foreign exchange market and will pursue all recent policies targeted at sanitizing the market to improve transparency and proper functioning to eliminate illegal foreign exchange dealers in the economy.’’




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