CBN Lifts Ban on Dollar Deposits, Stops Forex Sales to BDCs

After months of mounting pressure from economic analysts, small businesses, manufacturing concerns, the International Monetary Fund (IMF), and politicians such as Senate President Bukola Saraki, the Central Bank of Nigeria (CBN) monday relaxed some of its foreign currency controls by lifting its ban on foreign currency cash deposits in commercial banks.

The CBN Governor, Mr. Godwin Ifeanyi Emefiele, who disclosed this in a press statement he personally signed, said the policy should be implemented with immediate effect.

He equally announced that the central bank would discontinue its sale of foreign exchange to Bureau de Change (BDC) operators, confirming THISDAY’s exclusive report last month.

According to Emefiele, BDC operators would now need to source their foreign exchange from autonomous sources.

His directive, however, led to a slump of the naira on the parallel market to N282 to the dollar yesterday, from N277 at the weekend.

Emefiele stressed that the CBN would deploy more resources to monitoring these sources to ensure that no operator violates the country’s anti-money laundering laws.

He noted with grave concern that BDC operators had abandoned the original objective leading to their establishment, which was to serve retail end users who need $5,000 or less.

Instead, he said currency dealers became wholesale dealers in foreign exchange to the tune of millions of dollars per transaction

.

“Thereafter, they use fake documentations like passport numbers, bank verification numbers, boarding passes, and flight tickets to render weekly returns to the CBN,” he said.

“Let me note very importantly that these measures are not intended to be punitive on anyone or 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,” he said.

Providing more insight into the decision of the central bank to end dollar cash sales to BDCs, he said: “In total disregard of the difficulties that the Bank is facing in meeting its mandate of ‘maintaining the country’s foreign exchange reserves to safeguard the value of the naira’, we have continued to observe that stakeholders in some of the subsectors have not been helpful in this direction.

“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.

“Whereas the Bank 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, 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.”

Emefiele said rather than help to achieve the laudable objectives for which they were licensed, the central bank noted the following unintended outcomes: 

An 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, though, is the financial burden being placed on the Bank and our limited foreign exchange. The CBN sells $60,000 to each BDC per week. This amount translates to $167 million per week, and about $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 reserves per week and US$1.476 billion per annum.

“This 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,” he said.

Culled from ThisDay