Why we stopped forex sale to BDCs –CBN

Financial experts yesterday disagreed over the discontinuation of weekly sale of foreign exchange to Bureau de Change (BDCs) by the Central Bank of Nigeria (CBN).
Some of the experts, who spoke to Daily Sun, argued that the decision appears to be a wise one to meet essential demand for international trade, while others said it would further weaken the naira.
But the Governor of CBN Mr. Godwin Emefiele, who announced the ban, explained that the apex bank took its decisions owing to some shocks arising from development in both the international and domestic markets.
He complained that the illicit activities of some BDCs operators had impacted adversely on the conduct of monetary policy, through subtle subversion of cashless policy initiative and reserves depletion. Emefiele said while the apex bank would continue to regulate BDCs, those who feel uncomfortable with its policy were free to opt out as CBN will be ready to refund their cautionary deposit.
Meanwhile, an analyst, Head Treasury in Ecobank, Kunle Ezun, said CBN’s actions were aimed at addressing pressures on the local currency that have increased significantly in recent months, while arguing that FX supplies via a vibrant two way quote interbank foreign exchange market remains a big issue that the CBN needs to address in order to consolidate its efforts on foreign exchange management.
He, however, stated that in the immediate future, as USD supply to BDC is stopped, along with other recent FX demand management regulations, the naira is likely to weaken (although in the parallel market).
According to him, the lack of commitment to telegraphic transfers, FX cash notes, and the two way quote market, could further limit the positive impact introduced by the regulatory changes on the market, and would require another regulatory change by the CBN to correct the imbalances.
He further argued that the directive on FX sales to the BDCs was expected to impact the Naira outlook from the supply side, but the BDC market represents a small component of the FX market; with high distribution networks that cannot be wished away by the regulator.
Ezun advised that instead of an outright stoppage of FX sale, perhaps the CBN could have identified the erring BdCs for appropriate sanctions, while others are monitored real-time for compliance with the extant law.
Also reacting, Executive Director, Corporate Finance, BGL Capital Limited, Femi Ademola, said that based on the current development, the decision appears to be a wise one by the monetary authority to focus the official (interbank) foreign exchange market and meeting essential demand for international trade while the non-essentials would be met at the autonomous and parallel markets.
He affirmed that since the long-term strategy to manage the exchange rate was to completely float the currency, the development in the BDC market would be a good test-case for the eventually floating of the naira exchange rate.
He argued that the savings from the discontinuation of the sales of dollars to the BDCs, which was estimated at between $1.47 billion to $8.6 billion per annum should be used to meet the some of the genuine demand for foreign exchange at the interbank market.
Ademola added that the policy also allows the demand for school fees payment and travel allowances to be met at the interbank market, pointing out that though the development may see the exchange rate go up significantly in the autonomous and parallel market in the short term, it would stabilise after a while based on demand and supply.

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