They are to source their foreign exchange from autonomous sources.
Addressing journalists on the development in Abuja, CBN Governor Godwin Emefiele said BDCs “must, however, note that the CBN would deploy more resources to monitoring these sources to ensure that no operator is in violation of our anti-money laundering laws”.
The CBN also reversed its decision on the deposit of foreign currency in commercial banks, announcing that it will henceforth “permit commercial banks in the country to begin accepting cash deposits of foreign exchange from their customers”. Both decisions are to take effect immediately.
These measures, the CBN governor said “are not intended to be punitive on anyone or any group; rather, it is meant to ensure that the CBN is better able to carry out its mandate in an effective and efficient manner, which guarantees preservation of our scarce commonwealth, and that our hard-earned financial system stability remain intact to the benefit of all Nigerians.”
The apex bank took these decisions because of what Emefiele described as “total disregard of the difficulties that the CBN is facing in meeting its mandate of maintaining the country’s foreign exchange reserves to safeguard the value of the Naira”.
Emefiele lamented that the CBN has “continued to observe that stakeholders in some of the subsectors have not been helpful in this direction. In particular, we have noted with grave concern that Bureau de Change (BDC) operators have abandoned the original objective of their establishment, which was to serve retail end users who need US$5,000 or less. Instead, they have become wholesale dealers in foreign exchange to the tune of millions of dollars per transaction. Thereafter, they use fake documentations, like passport numbers, BVNs, boarding passes, and flight tickets, to render weekly returns to the CBN.”
Emefiele noted 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 stability in the market.”
According to him, “whereas the CBN has continued to sell US Dollars at about N197 per dollar to these operators, they have in turn become greedy in their sales to ordinary Nigerians, with selling rates of as high as N250 per dollar”.
Given this rent-seeking behaviour, Emefiele said, “it is not surprising that since the CBN began to sell foreign exchange to BDCs, the number of operators have risen from a mere 74 in 2005 to 2,786 BDCs today. In addition, the CBN receives close to 150 new applications for BDC licences every month, indicating that some individuals have identified a lucrative business venture that had become a threat to the Naira”.
Rather than help the CBN to achieve its objectives for which they (BDCs) were licensed, Emefiele said, “the Bank has noted the following unintended outcomes: Avalanche of rent-seeking operators only interested in widening margins and profits from the foreign exchange market, regardless of prevailing official and interbank rates; Potential financing of unauthorised transactions with foreign exchange procured from the CBN; Gradual dollarisation of the Nigerian economy, with attendant adverse consequences on the conduct of monetary policy and subtle subversion of cashless policy initiative; and Prevailing ownership of several BDCs by the same promoters in order to illegally buy foreign currencies multiple times from the CBN.
More disturbing to the CBN is the financial burden being placed on the Bank and the country’s limited foreign exchange.
The CBN, Emefiele said, “sells US$60,000 to each BDC per week.” “This amount translates to US$167 million per week, and about US$8.6 billion per year. In order to curtail this reserve depletion, we have reduced the amount of weekly sales to US$10,000 per BDC, which translates into US$28.4 million depletion of the foreign reserve per week and US$1.476 billion per annum.”
This, he stressed, “is a huge hemorrhage on our scarce foreign exchange reserves and cannot continue, especially because we are also concerned that BDCs have become a conduit for illicit trade and financial flows.”
Asked why it has proven difficult or impossible to prosecute erring BDCs, Emefiele said the CBN would now look at that possibility but added that “there are many things that the CBN is mandated to do, we would have lived a situation what people should do is obey and work within extant rules and regulations within which they are supposed to operate and do what is right, but if they begin to do what is wrong, in this case, it becomes a problem”.
Emefiele also said it was almost impossible for the Bank to monitor over 2700 BDCs with its limited number of examiners. “It is almost practically impossible,” he said, adding that “because of inadequate foreign exchange the BDCs have to source their foreign exchange autonomously. We do not have the resources to cope with over 2,000 BDCs in the country right now”.
BDCs not happy with this decision, the CBN said, “are free to return their licences and get a refund of the N35 million cautionary fees.” “Besides, we need more people go into other forms businesses like agriculture where we believe there is a lot of scope at this time,” Emefiele said.
On the reversal of its decision to have commercial banks accept foreign currency deposits again, the CBN governor said the banks “stopped deposit of foreign exchange then because we thought Nigerians were fast approaching dollarisation of the economy because a lot of people were speculating, and there was a lot of speculative attack on the currency”.
The CBN, he added, “saw a situation where people were going into their accounts, took their naira out of their accounts to buy dollars and indeed some were going to their banks to borrow money to buy dollar and stack those dollars in their accounts and, of course, it got to a point where the banks’ vaults were full and the banks wanted us to collect the cash and give them electronic dollar which we said we will not do and so what we had to do at that time was to plug the torrents of flow of the dollar, that has been achieved and at this point, we are beginning to think of opening the tap a little and let’s begin to see whether there will be proper orderly behaviour by operators as well as people in the market.”
“We believe that there are some people who would love to have the opportunity of depositing their foreign currency cash in their banks rather than in their houses, that is why we decided to open that tap again”, the governor said.
The immediate impact of the decision to stop selling foreign exchange to the BDCs, Emefiele explained, “it is the dollars that the CBN is giving the BDCs that is being round tripped to the banks; that is the reason why we said at this time because of limited resources we would not be able to fund the BDCs, they will believe there is always autonomous market and, indeed, in every part of the world there is the autonomous market. We believe that the autonomous market should be allowed to flourish and let’s see how it goes with the CBN out of that market.”
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