Ban on direct dollar sale to BDC s - Punch Newspapers
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3 August 2021THE ban last week by the Central Bank of Nigeria on direct sales of foreign currency to bureaux de change hit the financial markets like a thunderbolt. Upending a controversial policy, the CBN emerged from its regular Monetary Policy Committee meeting to announce immediate stoppage of the weekly direct allocation of United States dollars to the BDCs and moved to enhance the capacity of deposit money banks to supply foreign exchange to both wholesale and small end-users. This should be the beginning of necessary strong measures to resolve the crisis in the forex market.
After years of pampering the BDCs, the apex lender’s sudden strike was unexpected. It is also most welcome. As Godwin Emefiele, the CBN governor, said, the BDCs had abandoned their primary function of servicing small end-users of forex and become conduits for illicit financial flows and graft. He said the regulator had been inundated with complaints on their “disgraceful” illegal conduct, alleging that they had “turned themselves to agents that facilitate graft and corruption…and we believe that cannot be tolerated.” It cannot be stopped, too.
The bank, the government and its law enforcement agencies have tolerated the BDCs and their irregularities for too long. Complaints against the BDCs range from massive money laundering, hoarding and alleged conduits for the funding of terrorism, kidnapping, piracy, and drug trafficking. They feature prominently in corruption trials, exposed along with DMBs as accessories to treasury looting. They violate the rules, including maximum trading limits and profit margins. Until now, they have been treated with laxity. Emefiele should wield the CBN’s considerable regulatory powers to rein in the BDCs and calm the riotous forex market that has become a major handicap to businesses and the economy. headtopics.com
Signalling a return to saner practice, the DMBs will now receive higher forex allocations to serve small end-users; the existing BDCs will continue in business unhindered, but will no longer benefit from direct dollar sales from the CBN. This is the global best practice. As Emefiele has often repeated, “Nigeria is the only country in the world where the central bank sells dollars directly to BDCs.”
Financial sector operators and businesses initially feared that the move would further starve producers of forex, depress the naira even more, promote the black market and worsen inflation. Their fears were justifiably hinged on the notorious corruption, red tape, and inadequacy of the DMBs to cope with the sheer volume of retail demand, coupled with the equally well-known lax bank supervision by the CBN. Truly, the naira depreciated, falling from N501 to $1 and N522 to $1 within 48 hours. But follow-up action by the CBN calmed the market by weekend, enabling the naira to firm up. The apex bank’s order to the DMBs to open more dedicated forex retail windows and accommodate SMEs, start-ups and small end-users seeks to quickly fill the gap is being complied with.
Among other ailments, Nigeria’s economy suffers a forex management crisis. With a weak export base and private sector, the CBN is the major source of forex which it mismanages by maintaining multiple rates, weak enforcement of regulations, cronyism, and political interference. This has weakened the naira against other world currencies, starved the real sector of forex and encouraged illegal arbitrage. In an import-dependent economy, it also fuels inflation. The policy of selling dollars directly to the BDCs introduced in 2006 in furtherance of the Wholesale Dutch Auction System has compounded the crisis. Whereas the BDCs are to serve small users for Personal Travelling Allowance, Basic Travelling Allowance, school fees, medical bills, as well as small amounts of Diaspora remittances, weak oversight has allowed them to run riot. The opportunity for funding crime and money laundering, says the Financial Action Task Force, is also very high among the BDCs.
Illegal arbitrage is rampant and has created many billionaires. The CBN sells $20,000 to the BDCs at N391 to $1 and mandates that they sell at not more than N2 per dollar profit margin. This is laughable because at N500 per $1, the BDCs simply make a killing. Surveillance and sanctions have been few and far apart. Little wonder that from just about 270 in 2006, the number of the BDCs rose to 2,786 by 2016 and now number over 4,000. Over 5,000 applications for new ones are received each year, the CBN said. Insider abuse is rife and securing a licence is an instant key to illicit wealth. headtopics.com
Like everywhere else, the BDCs should independently source foreign currencies from multiple legitimate sources. They should be rigorously regulated to end their role as major facilitators of money laundering. The arrest and trial of some Nigerian BDC operators in the United Arab Emirates established their link in the financing of terrorism, kidnapping and banditry.Read more: The Punch Newspapers »
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