THE FOREX MARKET HOAX: CBN VS BDCs
BY HENRY BOYO
A Trade Group under the umbrella of Concerned Bureau de change operators recently published a full page advert titled “Appeal against Ploy to decimate BDCs and Destabilise the Forex Market”; the advert claimed that, the Central Bank was planning to reduce the number of BDCs in Nigeria, despite their contribution to the economy.
The association asserted that “there was no justification for the alleged plan to increase the mandatory caution deposit from $20,000 to the dollar equivalent of N35m, with licensing fees also increasing from N100,000 to N1million”. The BDC operators were concerned that more than 90% of the existing 3,000 members would be unable to increase their capital base from N10m to N35m as proposed in the alleged intended CBN plan. The BDCs, consequently, foresee that the resultant restricted forex market would be exploited by the alleged sponsors of the proposed CBN guidelines to make quick money, as the inevitable sharp drop in foreign exchange supply at the retail end of the market would widen the gap between the official and parallel market exchange rates with the usual adverse collaterals of currency round tripping, smuggling, capital flight and other sharp practices.
The BDC operators, therefore, argue that the proposed measures were misguided as their members could not be blamed for the heavy demand pressure in the foreign exchange market since CBN’s official statistics clearly show that out of the $14.8bn sold by the Apex Bank in the first quarter of 2014, only $1.7bn or 11.4% was directly sold to BDCs while the remaining 88.6% was sold to commercial banks. Nonetheless, in spite of the relatively modest forex allocations to BDCs, the association claimed that their presence in the market had infact reduced the gap between the official and the parallel market exchange rates by diverting patronage from unauthorised forex dealers (black market?) to the official market, (BDCs?), while their interventions have similarly helped to stabilise and minimize opportunities for rent seeking in the market.
Consequently, the BDC operators warned that “only unpatriotic people with sinister agenda would initiate a policy that would truncate this stability and empower ‘black market’ operators”. Beyond this, the BDC operators also claimed that about 5 million Nigerians would become unemployed to worsen the already grave unemployment situation in the country, if the new guidelines were effected.
The above notwithstanding, , the suspicions of the forex operators were confirmed barely a week later when CBN published new policy guidelines which were totally in consonance with the content of the earlier BDC advertorial. Worse still, the CBN would now also punish any operator found to have ownership of multiple BDCs. The CBN noted that the new measures became necessary to “halt the depletion of the country’s foreign reserves and the potential for financing of unauthorized transactions with foreign exchange procured from the CBN window”. The Central Bank further alleged that the activities of the BDCs “have led to gradual dollarization of Nigerian economy with adverse consequences for the successful conduct of monetary policy and the cashless policy initiatives of the monetary authority”.
The critical question, however, must be who infact is damaging the Nigerian economy, the BDCs or Central Bank’s policies? Indeed, we have maintained in several articles in this column that successful and focused economies do not liberally allocate official forex to Bureau De Change, as the forex income of BDCs in such countries, is normally derived from tourists and business travellers with modest forex requirements. The regular detection of millions of hard dollar cash at our border posts on several airline passengers to Europe, Dubai and elsewhere would not have been sold to BDCs by the Central Banks any responsible economy.
Curiously, Nigeria’s official forex revenue which is denied as direct dollar allocation to the true beneficiaries, (i.e., the three arms of government and related agencies) become ironically available to BDCs for funding the activities of smugglers of those goods that flood our markets and destabilize the survival of our local industries. It is also presumptuous for the CBN to believe that the use of BDC forex sales can be sanitized by mere reduction in the number of BDC operators. In reality, inspite of the new guidelines, the average forex allocation to BDCs which was reported to be about $1.7bn in the first quarter of 2014 may simply become consolidated and made available to the market through a reduced number of outlets, thus facilitating a cartel, which will ultimately selfishly control the market to produce wide disparity between official and black market rates.
Nonetheless, the concerned BDC operators’ claim of providing 5million job opportunities must be taken cautiously; in reality, the characteristic staff strength in most BDCs rarely exceeds 5 persons. Thus, 3,000 Bureau De Change operators may only actually create at best about 20,000 jobs despite their liberal access to possibly over $7bn of official foreign exchange annually.
Consequently, CBN’s new guidelines will not blow down the walls of corruption and rent seeking in the forex market. Furthermore, the CBN seems to have also misguidedly blamed the activities of BDCs for the failure of its monetary strategy. Indeed, the CBN has no business selling official dollars to BDCs, but the Apex Bank has regrettably found itself promoting this odious role because of its own selfish reluctance to release its obnoxious stranglehold monopoly on the foreign exchange market. The CBN currently has a total monopoly of Naira supply, while also accounting for about 80% of Dollar sales in the market. Curiously, the CBN in a poisonous collaboration with its ‘frankenstein’ BDCs and predatory commercial banks ‘altruistically’ pretend to defend the Naira by regularly selling small rations of the federation’s dollars that it impounded after printing and substituting fresh supplies of Naira as monthly allocations of forex revenue to the three tiers of government.
Nonetheless, the CBN remains in denial that capital flight and a weaker Naira are equally induced by the excess Naira supply that it deliberately instigates in the money market with this subtle sleight of hand, which serially increases CBN’s so called “own reserves” as poverty depends nationwide.
Incidentally, the same excess Naira supply consciously induced by CBN also promotes a trail of adverse economic consequences, such as, inflation, high cost of funds, a weaker Naira and the collateral of increasing fuel prices and subsidy payments in excess of $12bn annually! Indeed, the CBN cannot also deny that its self-inflicted burden of excess liquidity also forces government to disparately place it deposits at zero percent only to return and borrow from the same banks at double digit interest rates and thereafter warehouse these loans as idle funds.
The National Assembly cannot also deny knowledge of the wide advert impact of CBN’s obtuse and anti-social monetary strategy; consequently, Nigerians will not be surprised if legislators insisted on the existing system where BDCs continue to have liberal access to foreign exchange allocations from the CBN window for liberal sale to customers.
SAVE THE NAIRA, SAVE NIGERIANS!!