CBN expected to resume sales to BDCs when international flights resume
he Federal Government’s announcement, last week, that international flights would resume in weeks, has pushed Bureaux De Change (BDC) operators in the country into making preparations for an imminent resumption of foreign exchange sales in their segment of the market, findings by New Telegraph show.
Over 5,000 BDC operators across the country had abandoned their offices since March 26 this year, when the Central Bank of Nigeria (CBN), in line with efforts by the Federal Government to contain the spread of the coronavirus (COVID-19) pandemic, which included the banning of domestic and international flights, suspended the sale of forex to BDCs.
The CBN move was also supported by the Association of Bureaux De Change Operators of Nigeria (ABCON), which, in fact, had earlier written a letter to the apex bank, recommending a halt to the regulator’s sale of forex to the BDCs.
Also, analysts said the CBN’s action was to enable it to conserve scarce forex resources, particularly in the face of sustained pressure in the Investors and Exporters’ window ( I&E) window owing to rising capital outflows and falling external reserves occasioned by the sharp drop in oil prices.
BDC operators have, however, taken the announcement by the Minister of Aviation, Hadi Sirika, last Thursday that international flights would resume in weeks as an indication that the CBN will soon resume its weekly forex sales to them.
The CBN sells $20,000 to each BDC operator three times every week – Mondays, Wednesdays and Fridays.
On November 30, 2018, the CBN introduced special intervention of cash dollar sales to the tune of $15,000 to each BDC operator every Thursday.
A Lagos-based BDC operator, Mr. Chuks Okechukwu, told New Telegraph that the resumption of international flights would lead to the CBN resuming dollar sales to BDCs because that segment of the forex market mainly takes care of people who purchase Personal Travel Allowance (PTA) and Business Travel Allowance(BTA).
He said: “The news of an imminent resumption of international flights is very much welcome as there will be demand for our services and the CBN will have to respond. I have not been to my office since April when the government imposed coronavirus lockdown restrictions. Initially, we thought the restrictions would not last for more than a month, but as the months rolled by, I had begun to think of starting another business so that my family will not starve.”
According to him, the resumption of forex sales to BDCs will also help to reduce the huge pressure that the naira has been coming under in the parallel market recent months.
The naira had steadily dropped against the dollar on the unofficial market, falling from about N461 per dollar in May to N475/$1 as at last Friday.
Traders and stakeholders have attributed the local currency’s weakness on the parallel market to the activities of currency speculators who took advantage of the absence of BDCs to make spurious demand for dollars.
In fact, in May this year when the CBN announced that it was resuming the provision of foreign exchange to all commercial
banks for onward sales to parents wishing to pay school fees and Small and Medium Enterprises (SMES) and that it had completed arrangements to resume foreign exchange sales to the BDCs for business travels, personal travels and other designated retail uses, as soon as international flights resume, forex dealers had said the development would hurt currency speculators.
Speaking with journalists at the time, ABCON President, Aminu Gwadabe, said that the CBN’s planned lifting of moratorium on dollar sales to BDCs, reopening of the airports for air travels, would bolster the naira.
He said: “The return of over 5,000 BDCs to the forex market will add great strength to the naira and lead to major capital losses for forex speculators. It happened in 2016 and will happen again in 2020. The return of the BDCs will immediately boost naira recovery and put the enemies of the economy to shame.”
In addition, he said the return of BDCs to the forex market will help chase away speculators, curb rising inflation, boost productivity and employment, enhance price discovery, market transparency and competitiveness.
Analysts estimate that the CBN’s resumption of dollar sales to BDCs could lead to currency speculators incurring losses of over N 10billion.
Indeed, former Governor of the CBN, Muhammad Sanusi, on July 28, called for the BDC segment of the foreign exchange market to be funded as part of efforts to curb speculation and ensure exchange rate stability.
Sanusi, who stated this, while participating in a webinar hosted by the currency trading solutions firm, AZA, noted that although the BDC segment constitutes a small percentage of the market, it has an impact on speculation.
He said: “The BDC rates remain an outlier. It’s a small percentage of the market, but it does have an impact on speculation, which is why it’s important to fund that market. So, when you see this huge gap between NAFEX and BDC, this is a reflection of funding being taken out to the market because of shortages of foreign exchange.
“And once the central bank has enough money and funds that market, it will probably converge, so I would not be interested in moving the rates towards 470, for example, but I would like to see a convergence of CBN and NAFEX, which will take care of over 90% of the transactions in the market and there is some small funding for BDC rate to bring it back to that level.
“It is what the IMF and the World Bank have asked for. It makes for positive transparency; it makes for clarity of direction; it also reduces the speculative demand for naira.”