CBN-BDC Melee At Stabilizing the Naira

The Central Bank of Nigeria stopped the sale of Foreign Currencies to Bureau De Change (BDC) operators, almost a month ago. The CBN governor, Godwin Emefiele emphasized this position at the end of the Monetary Policy Meeting (MPC) of 27th July 2021.


The CBN governor in his speech was disappointed by the uncooperating activities of the BDC operators "He said, “In particular, we have noted with disappointment and great concern that our Bureau De Change operators have abandoned the original objective for their establishment, which was to serve retail end users who need $5,000 or less. Instead, they have become wholesale dealers, illegally in foreign exchange to the tune of millions of dollars per transaction."


The regulator and other stakeholders view the BDC operators as being greedy, obsessed with a dangerous quest for abnormal profits thereby destabilizing the country's currency.



However,  despite the stoppage of the official sale of FOREX to the BDCs, the BDC operators are still surviving and are in business by sourcing foreign currencies from other sources.


The BDC operators source foreign currencies from individual inflows and money transfers from Nigerians living outside the country. The major flows come from Nigerians in the diaspora from UK, US, and Europe to support their families and invest in projects locally.


The Apex Bank governor in his frustration further reiterated in his address that "“Despite the fact that Nigeria is the only country in the world today where a central bank sells dollars directly to the Bureau De Change, operators in the Nigeria Bureaus De Change segment have not reciprocated the bank’s gesture to help maintain price stability in that market.”



The relevance of the BDC is supported by some systemic barriers, the CBN has limits on how much individuals can move from their domiciliary accounts and the requirement for disclosures are some of the restraints that make many Nigerians patronize the BDCs who have perfected the act of bypassing the official requirements and limitations to customers accessing volumes of Forex they need for their personal and business use.  A BDC license costs as much as N35 Million which is a difficult hurdle for most of the small but stand-a-lone operators to cross. This barrier pushes them to the retail segment of the FX market supply chain. 
     

The BDCs have established strategic partnerships with both formal and informal players worldwide that enhance their financial intervention and payments activities to their customers, irrespective of the CBN policy. 


The bigger BDC Operators that have licenses can also not source FX from the CBN because of the new Policy, since CBN is no longer selling to them. Out of desperation, some BDC operators use customers who have proper documentation such as passports and travel documents to collect the maximum amount for personal travel allowance (PTAs) or business travel allowance (BTAs) from the banks. This serves as a major source of forex supply to BDC operators especially due to the high number of individuals interested in traveling out of the country.


That twisted avenue is very profitable for the BDCs since they get the FX at a very cheaper rate offered by CBN  to travelers and they sell it at the higher-margin black-market rate. 



Due to Nigeria's overreliance on the importation of goods and services. It is unlikely that we see any changes to the devaluation of the Naira anytime soon. Hence there is a growing demand for the greenback by the people. The Demand for Dollars et al has been on a significant increase which has pushed the black market rate to N520, this is over N100 above the official rate of N410.29 (I AND E window) as at the time of this report.


However, within the Nigerian financial market space, the Bureau De Change (BDCs) is a key player that is needed, they should therefore not be banned but properly managed and monitored by the industry regulator. 


It is important that the CBN become more innovative and the economy should be made more attractive to attract huge foreign investments before there could be a relative balance between supply and demand of FOREX in the country.