Central Bank of Nigeria (CBN) is set to resume dollar sales to Bureaux De Change (CBN), in a bid to arrest the continued depreciation of the naira in the parallel foreign exchange market as well as reduce opportunity for round tripping of foreign exchange.
Vanguard investigations reveal that CBN yesterday held a meeting with the leadership of Association of Bureaux De Change Operators of Nigeria (ABCON), the umbrella body of BDCs in the country. It was gathered that the CBN informed the ABCON leaders that it would soon resume dollar sales to BDCs.
ABCON President, Alhaji Aminu Gwadabe confirmed this to Vanguard. He said, “We just held a meeting with the CBN and they informed us that they would soon resume dollar sales to BDCs.” He said the apex bank also promised to create addition windows for BDCs to access foreign exchange but the details and criteria would be announced later.
He said, “We also assured them that we would ensure that BDCs abide by the criteria as well as comply with all regulatory requirement to justify the renewed confidence in the subsector”.
CBN Acting Director, Corporate Communications, Mr. Isaac Okorafor however could not confirm this development to Vanguard as at the time of going to press. “I will find out and get back to you”, he said
Why the CBN suspended dollar sales to BDCs
The CBN on Monday January 11th, 2016 suspended dollar sales to BDCs due to decline in the country’s foreign exchange earnings, and sharp practices by BDCs. According to CBN Governor, Mr. Godwin Emefiele, “This fall in oil prices also implies that the CBN’s monthly foreign earnings have fallen from as high as US$3.2 billion to current levels of as low as US$1 billion. Yet, the demand for foreign exchange by mostly domestic importers has risen significantly. For example, the last we had oil prices at about US$50 per barrel for an extended period of time was in 2005. At that time, our average import bill was N148.3 billion per month. In stark contrast, our average import bill for the first nine months of 2015 is N917.6 billion per month, even though oil prices are now less than US$35 per barrel.
The net effect of these combined forces unfortunately is the depletion of our foreign exchange reserves. As of June 2014, the stock of Foreign Exchange Reserves stood at about US$37.3 billion but has declined to around US$28.0 billion as of today.”
“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 $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.”
Why the CBN is resuming dollar sales to BDCs
The decision to resume dollar sales to BDCs must have been influenced by the need to reduce opportunity for round tripping of foreign exchange by closing the gap between the interbank and parallel market exchange rate, which widened yesterday, following further depreciation of the naira in the parallel market.
At the close of trading yesterday, the parallel market exchange rate rose to N355 per dollar yesterday from N351 per dollar on Monday, indicating N4 or 1.1 per cent depreciation.
Two weeks ago, the parallel market exchange rate had fallen upon announcement of the details of the CBN flexible exchange rate regime. From N369 per dollar on Tuesday June 16th, 2016 when the CBN announced details of the new exchange rate regime, the parallel market exchange rate fell steadily, reaching to N345 last week Tuesday due to panic reaction to the commencement of the revived interbank foreign exchange market. The parallel market exchange rate however resumed its upward movement last week due to demand pressure and dearth of dollar supplies, reaching N351 per dollar at the close of business last week Friday.
However, the naira had remained relatively stable at the interbank market. Apart from the sharp depreciation in the first day of trading on Monday June 20th, 2016, when the interbank exchange rate rose from N197 to N281.85 per dollar, the naira had remained below N285 per dollar in the interbank market.
This however resulted a widening of the gap between the interbank exchange rate and the parallel market exchange rate. The gap between the two exchange rates rose from N60.57 per dollar on Tuesday June 21st, 2016 to N72.68 yesterday.
This development implies increased incentive for round tripping of foreign exchange from the interbank market to the parallel market.
A CBN investigation in 2002 had find 21 banks guilty of foreign exchange round tripping, leading to imposing of sanctions including one year suspension of the banks from the foreign exchange market.
Naira depreciates to N282.32 in interbank
Meanwhile the naira suffered marginal depreciation in the interbank foreign exchange market yesterday as the interbank exchange rate for sport transactions rose to N282.32, indicating 84 kobo or depreciation for the naira. On Monday the naira depreciated by 35 kobo for spot transactions while remaining stable for futures transactions. Consequently the naira has depreciated by N1.18 or 0.4 percent in the interbank market this week.
