In January 2016, the CBN announced that it had stopped, with immediate effect, the sale of foreign exchange to Bureau de Change (BDCs), so as to reduce pressure on Nigeria’s foreign reserves. The CBN Governor, Godwin Emefiele, therefore directed that BDCs will henceforth source forex from the autonomous market.

In defence of the new policy, the CBN helmsman observed that “despite the fact that Nigeria is the only country in the world where the central bank sells dollars directly to BDCs, operators in this segment have not reciprocated the Bank’s gesture to help maintain market stability. Instead, these operators have become greedy by selling dollars they bought from CBN for N197 at rates as high as N250/$. Given this rent-seeking behaviour, it is not surprising that the number of BDC operators has risen from a mere 74 in 2005 to 2,786 today.”

The BDCs were similarly fingered as potential financiers of unauthorized transactions with foreign exchange procured from the CBN and they were also condemned for their odious role in the “gradual dollarization of the Nigerian economy, despite the attendant adverse consequences on monetary policy management and the subtle subversion of the cashless policy initiative”. Furthermore, the same owners allegedly created chains of BDCs, in order to “illegally buy foreign currencies multiple times from CBN.” 

Consequently, Emefiele, has described the insatiable appetite of BDCs for forex as “a huge hemorrhage which cannot be sustained on our scarce foreign exchange reserves, especially since BDCs have become a conduit for illicit trade and financial malpractices.” 

However, barely 6 months after the above disturbing observations, a CBN circular titled “SALES OF FOREIGN CURRENCY PROCEEDS OF INTERNATIONAL MONEY TRANSFERS TO ‘BDC’ OPERATORS” of 22/07/2016, inexplicably states as follows: 
“In the continued effort to ensure exchange rate stability and encourage participation of all critical stakeholders in the forex market, authorized forex Dealers are hereby directed to sell foreign currency accruing from inward money remittances to licensed BDCs with immediate effect.”

“Furthermore, all International Money Transfer Operators are now required to “remit foreign currency to agent banks for disbursement in Naira to beneficiaries, while the foreign currency proceeds shall be sold to BDC operators, who comply with the existing provisions of the Anti-Money Laundering Laws and who have also observed the appropriate KYC Banking principles.” CBN’s directive notwithstanding, beneficiaries of International Money Transfers may however, wonder why they cannot sell their dollars directly to BDCs or any other buyers they chose. 

Looking back, however, let us backtrack to March 2006, when incumbent CBN Governor, Chukwuma Soludo confirmed, at a press briefing, that the Wholesale Dutch Auction System (WDAS) was established to replace the existing Retail equivalent (RDAS) so as to make foreign exchange management more efficient and effective.”

Although, WDAS, according to Soludo, improved the efficiency of the forex market and facilitated the convergence of the interbank and the official rates”, unexpectedly however, “the increasing divergence between the interbank/official and the BDC/parallel market rates” had become very worrisome. Instructively, Soludo had fingered heavy forex demand to fund the smuggling of a long list of banned imports as a major reason for this disparity in market rates.”
Consequently, Soludo resolved “to review or eliminate many of the restrictions imposed on users of the official market, so that hitherto ineligible transactions in the official market will become eligible, and thereby reduce pressure on the parallel market!!!”

In plain language, Soludo decided to throw Nigeria’s relatively scarce, valuable dollar reserves at BDCs despite his own admission that the major patrons of BDCs were those whose activities were inimical to the Nigeria economy; i.e. money launderers and smugglers!  

In an article titled “Cheaper Black Market Dollars”, in Vanguard Newspapers of 17/7/06, I observed that this “approach to reducing the gap between the parallel market and official rate is akin to smashing a cockroach on a glass table with a sledge hammer!!  In retrospect, unfortunately, the cockroach got away, as the gap between the black market and official rate is currently at its widest ever, while the shattered glass of a CBN funded parallel market has actually consistently weakened the Naira exchange rate to sadly inflict serious injury on everyone.”
The following is a summary of another article titled “CBN Stop This Nonsense”, the narrative reflects the CBN’s counterproductive impulsive tradition in the forex market.
“The Apex bank has since released further details of its ‘easy dollar’ project, even though the raison d’etre and framework of this policy seriously contradicts the promise of improved social welfare and national economic regeneration.  Curiously, the inspiration for the new ‘easy dollar’ regime came from our ‘friendly’ foreign creditors ‘the Paris Club’.  According to Dr. Mailafia, a CBN Deputy Governor, the Paris Club demanded the implementation of an ‘easy dollar regime’ as a precondition for their widely condemned spurious debt relief to Nigeria.”

“Nevertheless, the spectre of oil prices approaching and exceeding $80/barrel this year will seriously concern the IMF and the Paris/London Club affiliates. However, their points men are still strategically stationed in the CBN and Finance Ministry to ‘advise’ and ensure that the considerable export revenue increase, from rising crude oil prices, for countries like Nigeria, will ultimately be repatriated to bank accounts in Europe/USA through the ample opportunities deliberately created by celebrated, allegedly ‘progressive’ and liberal government policies, which will inevitably facilitate capital flight.  It is no secret that the IMF and affiliate institutions currently pay the salaries of critical members of our government’s economic team (including Nigeria’s finance minister) and we must remember that he who pays the piper dictates the tune.”  

“What is clear from the IMF/Paris –London Club induced CBN guidelines on forex liberalisation is that our monetary authorities have once more positioned our foreign reserves for easy evacuation abroad; furthermore, Nigeria’s rapid accumulation of spurious foreign obligations will persist; unfortunately, Nigeria’s debts will once more steadily balloon unnoticed for some time until our ‘benevolent’ overseas creditors decide to rehash a new cycle of economic restructuring with another set of IMF schooled monetary wizards, who will ensure that government will never take those decisions that will drive our vision of a vibrant and competitive economy.”

“In a fruitless attempt to bridge the present N20/$ gap between official and parallel market rates, and indeed, in deference to the popular demand of IMF & Co, and in a fine demonstration of profligacy, the Apex bank will henceforth supply each registered BDCs with $200,000 twice weekly for onward sales to itinerant customers. There is no evidence that this level of easy access to public forex reserves exists anywhere in the world; for example, if 300 registered BDCs enjoy CBN’s ‘dollar party’, Nigeria’s reserves will fall by almost $300m monthly!  Some observers say that these are good days for the elite groups of smugglers of contraband into the country. With such ‘easy dollar’ party in place, our emaciated local manufacturers may soon be singing Nunc Dimitis, unless good Nigerians everywhere wake up from their slumber and tell the CBN that enough is enough!”

Since the above article was written in 2009, the various market structures with exotic acronyms promoted by CBN have failed to stop the steady slide of the Naira exchange rate, even when oil prices later exceeded $120/barrel while Nigeria’s dollar reserves crossed $60bn. Once again, a gap of almost N100 now exists between N300/$ CBN/interbank and N380/$ BDC/parallel market rate. As for the way forward, and the ultimate fate of the Naira exchange rate, your guess is as good as mine.”