CBN Deputy Governor
Operations Directorate, Tunde Lemo Two weeks after the Central Bank of Nigeria rolled out new rules on foreign exchange market, the anticipated benefits of the new policy as well as the challenge of implementation are still being discussed at different levels of discourse, reports Festus Akanbi As the nation inches close to the election year 2015 with the attendant threat to fiscal discipline, which the current administration preaches,
the Central Bank of Nigeria (CBN) has through its foreign exchange policy review moved to halt the growing incidence of foreign exchange round tripping, money laundering and the growing dollarisation of the economy. Information available to the apex bank had showed a rise in importation of dollar, rise in demand for dollar at the official market without a corresponding rise in export figure as well as some unwholesome activities of some bureau de change operators. Consequently, the CBN announced the suspension of its Wholesale Dutch Auction system, which has since been replaced with the Retail Dutch Auction System. In its circular dated September 26, the CBN also stated that the receipts of proceeds of international money transfers be paid in naira, while at the same time increasing the ceiling on the naira debit and credit cards allowance to $150,000 from $40,000. The importation of foreign currencies into Nigeria is now subject to CBN’s prior approval. In addition, the regulatory body revoked the operating licenses of 20 Bureaux de Change (BDC) dealers. Temporary Relief? Lagos-based financial advisory firm, Financial Derivatives Company, believes the re-introduction of the RDAS ensures transparency in the foreign exchange market, as banks have to disclose the details of all transactions. The firm, in its monthly magazine, FDC Economic Monthly, said the CBN’s policy change was expected to curb currency osmosis (or round tripping by banks) and currency speculation. The implication of this would be a reduction in the demand pressure and a short-term appreciation in currency value. “Since all foreign currencies are now subject to the CBN’s approval (an indirect ban on currency importation), we expect to see a reduction in cash availability. The BDC segment would be most affected as the CBN has also restricted the maximum forex sale to operators in the segment to $250,000 weekly. “The downside to this is a possible depreciation of the naira at the BDC as supply flows decline. Nonetheless, the increased ceiling in debit/credit card usages implies that travellers are less likely to demand for cash to make transactions, provided the switch from cash to cards is done”. How Enduring is the Policy? Answering this question, the firm said in the magazine, “In conclusion, these measures have been put in place to stem currency weakness and ensure stability in the forex market. However, the question is- if these measures are a just a band aid covering a festering wound or a lasting solution to the fight for exchange rate stability”. In his analysis, a renowned Economist and Managing Director, Cocosheen Nigeria Limited Ikeja, Mr. Henry Boyo, recalled that the RDAS, which the apex bank has just introduced, had failed in the past, and was substituted with the WDAS, which is now again being replaced by the earlier discarded RDAS. Forex Market Structures Bayo said: “Instructively, the earlier adopted forex market systems, such as the FEM, IFEM, AFEM, and DAS, all failed, just like the RDAS and the WDAS, to forestall extensive dollar hoarding and round-tripping. Consequently, if the truth must be told, this latest reintroduction of the RDAS is retrogressive and akin to a dog returning to its vomit. “In reality, these forex market structures failed because the CBN consciously ignored the other side of the equation relating to the supply of naira, because, as earlier indicated, when increasing cash sums chase any commodity whose supply is sticky or hoarded, the price of that commodity will invariably rise. In other words, whenever naira supply increases relative to available dollars, the dollar’s price will rise with increased patronage.” Boyo, who is also a columnist, maintained that, “any realistic and sustainable solution to the consequences of a beleaguered naira must recognise the cause of unceasing excess naira or excess liquidity in the market! Every month, against the grain of economic wisdom, the CBN religiously borrows about N300bn excess cash at oppressive interest rates in order to reduce perceived surplus naira from the commercial banks and forestall inflation. “Despite the CBN Governor Lamido Sanusi’s belated “confession” of “unknowingly” sustaining the practice of borrowing back government funds in such transactions with oppressive interest rates, our leaders do not seem to care that the cumulative humongous public debts are ultimately not applied to infrastructural enhancement or improvement in our social welfare.” He argued that rather than blaming the perceived excessive spending of government for the unending surplus cash in the system, the truth, of course, remains clear that the unending scourge of systemic excess naira is clearly the result of the ability of commercial banks to leverage multiple folds on the fresh inflow of hundreds of billions of naira, which the CBN substitutes for distributable federation dollar revenue in monthly allocations to the three tiers of government!! Surely, the CBN cannot sincerely contest this reality. Besides, government’s annual budgets below N5 trillion constitute less than five per cent of the total estimated liquidity base (surplus cash) of over N100 trillion!!” Dollar Allocation He is of the opinion that if dollar revenue allocations are paid with dollar certificates, it will be easy to discover that the destabilising problem of naira surplus in the system and the accumulation of avoidable public debts will become a thing of the past, while the curse of systemic naira flush existing simultaneously with acute shortage of low-cost funds to the real sector will be exorcised! Still on his call for the payment of dollar revenue allocation with dollar certificates, Boyo insisted that the erstwhile artificial lopsided equation between naira and dollar supply would increasingly begin to be redressed in favour of the local currency, adding that a stronger naira will shift market preference from the dollar and reduce the propensity for round tripping and stifling dollar importation! He wondered why the naira rate of exchange invariably comes under pressure simultaneously with increasing CBN dollar reserves. “So, in effect, it is the CBN’s obnoxious monetary policy framework that repels market affinity/loyalty to the naira, and instigates the dollarisation of the economy with large-scale forex round-tripping and re-importation of part of the dollars earlier purchased from the CBN and remitted abroad by banks under the WDAS,” he alleged. Announcing the revocation of licences of 20 bureau de change operators, CBN Governor Sanusi said the affected BDCs operators bought dollars from commercial banks without accounting for what the dollars were needed for, or who the purchasers of the money were. The CBN governor said the apex bank’s investigation showed that commercial banks were importing billions of US dollars in the country for onward sale to the affected BDCs. He said Nigeria had taken over from Russia as the highest importer of U.S. dollars, which led to the fall of the nation’s local currency at the foreign exchange market. Sanusi said the country was importing more U.S. dollars in cash than any other country in the world. Meanwhile, the Association of Bureaux De Change Operators of Nigeria (ABCON) said it fully supports recent measures of the Central Bank of Nigeria (CBN) to check money laundering, and other malpractice in the foreign exchange market. Commenting on this development, Acting President, Alhaji Aminu Gwadabe, said the measures by the CBN were in line with the position of the ABCON on compliance with regulatory requirements. “The association has a zero-tolerance stance when it comes to the issue of compliance with regulatory requirements, especially rendition on returns as well as compliance with approved limits for foreign exchange transactions. We have made it clearly known to our members that we would not hesitate to impose sanctions or report to the CBN, any member found guilty of not complying with these requirements. So we are fully in support of the actions of the CBN.” The association believed such action is necessary to ensure sanity in the foreign exchange market, and most importantly the stability of the naira, which is critical to our economy”. The ABCON president said that most of the 3000 licensed BDCs in the country, conducts their businesses in compliance with the requirements of the CBN, and only very few are exception.
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