Tony Chukwunyem A former Governor of Central Bank of Nigeria (CBN), Muhammad Sanusi, has called for the Bureaux De Change (BDCs) segment of the foreign exchange market to be funded as part of efforts to curb speculation.
Sanusi, who stated this during in a webinar hosted by currency trading solutions firm, AZA, noted that although the BDC segment constituted a small percentage of the market, it has an impact on speculation. In the wake of measures announced by the Federal Government to contain the spread of coronavirus (Covid-19), the CBN had in March this year suspended the sale of forex to BDCs.
The CBN’s 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 weekly sale of forex to the BDCs.
Analysts noted that the CBN’s action was also part of its strategy to conserve external reserves that have been negatively impacted by the sharp drop in price of oil (the commodity that accounts for over 90 per cent of the country’s export earnings) as well as the coronavirus crisis.
Although the CBN had recently taken further measures aimed at achieving its stated objective of exchange rate unification, the gap between the official and unofficial forex rates has been widening. The CBN also retains the N360/per dollar rate on its website compared with N388/$1 on the Investors and Exporters’ (I&E)-NAFEXwindow. Commenting on the situation, Sanusi 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 than 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 per cent of the transactions in the market and there is some small funding for BDC rate to bring it back to that level.”
He defended the CBN exchange rate unification strategy, noting that the move would curb arbitrage in the forex market in addition to making forex transactions more transparent.
According to him, given the current level of external reserves as well as the continuity uncertainty in the oil market, it would be risky for the regulator to try to meet every demand for forex. He said: “You’ve got a lot of portfolio investors who would like to take their money today.
You’ve got about I think $4 billion on the wait list. The reserves of the country are $36 billion, the central bank has about $28 billion of reserves, so it’s clearly not a question of the central bank not having enough money to pay this, but would you just pay off $4 billion in one go?