The Quest for Exchange Rate Stability

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MARKET INDICATOR

By Obinna Chima

The situation in the foreign exchange market in the past few days, which saw the naira drop to a historic low of N425 to the dollar on the parallel market arm of the forex market, obviously got all concerned stakeholders alarmed.

The situation, which was exacerbated by scarcity of the greenback following the suspension of eight banks over their failure to return a total of $1.8 billion Nigerian National Petroleum Corporation (NNPC)/Nigerian Liquefied Natural Gas (NLNG) Company dollar deposits to the Treasury Single Account (TSA) as directed by the federal government, has also raised concerns about the ability of banks to genuinely fund the Bureau De Change (BDC) sub-sector of the forex market.

That is why experts have argued that there is need for the Central Bank of Nigeria (CBN) to outsource the dollar distribution role to an independent body that would make the funds readily accessible to the BDCs. This, they argued would strengthen the foreign exchange market.
The BDC sub-sector remains a critical agent for Nigeria’s economic growth and stability of the foreign exchange market.
Knowing fully well the role BDCs play in achieving exchange rate stability and making forex available to the retail end of the market, the central bank recently directed commercial banks to sell $50,000 Diaspora-related forex on weekly basis to nearly 3,000 BDC operators.

However, recent happenings have questioned the need for banks to continue to disburse diaspora remittances estimated at $21 billion annually to BDCs as instructed by the central bank.
This was accentuated by a recent disclosure by the CBN that the lenders are violating international money transfer rules, establishing private and company accounts to harvest dollar inflows from abroad without following the right Know Your Customer (KYC) requirements.
The banks have also been accused of not adhering to the directive that they sell dollar inflows through remittances to BDCs.

Enhancing Dollar Liquidity
Speaking on these developments, President, Association of Bureau De Change Operators of Nigeria (ABCON) Alhaji Aminu Gwadabe said only 10 per cent of BDCs from the Lagos market have so far accessed dollar from banks since the CBN gave the directive nearly a month ago.
“The proceeds of the international money transfer funds are not CBN money. It is not from the foreign reserves of the CBN. This is money that Nigerians in Diaspora, are sending into the economy. Before, this money came through unofficial means, some sending through hands, and at the end of the day, the beneficiary will not even get the money. And in other countries, the Diaspora funds are strictly for BDCs,” Gwadabe explained.

The ABCON boss is urging the CBN to outsource the dollar distribution role to independent distributor since the banks have failed in their assigned role.
According to him, the banks that are so far involved in the dollar sales to BDCs include FirstBank, Ecobank Nigeria, Fidelity Bank, United Bank for Africa and Unity Bank. Others are Diamond Bank, Zenith Bank and Stanbic IBTC Bank.
Gwadabe disclosed that BDCs in Port Harcourt, Kano, Abuja, Onitsha, Maiduguri, Benin and Enugu are yet to get a single dollar from these banks. The ABCON chief said that the banks are also selling dollar far above the interbank rate. The banks, he added, are supposed to sell to the BDCs on the same day within the week, but have failed to do so. “Instead of staggering the payment, the banks should sell to the BDCs on the same week day, so that the impact will be felt in the market,” he said.
“Our members across the country have funded their accounts but the banks are not selling to them. The BDCs that met the CBN’s policy guidelines on the disbursement and cleared by the banks have still not received a dime from the banks,” he added.
“I think the banks are compromising the policy and CBN’s directive on the matter. And like I said earlier, since the banks are not co-operating, I expect the CBN to take that role from them and assign it to a reputable independent distributor,” he advised.
The CBN acting Director, Trade & Exchange, W.D. Gotring recently directed through a circular to authorised dealers that all agents to approved IMTOs sell $50,000 weekly foreign currency accruing from inward money remittances to licenced BDCs. The directive was meant to ensure stability of the exchange rate and encourage participation of critical stakeholders in the foreign exchange market.
Gotring, in a circular to authorised dealers titled: Re: Transactions in ‘Free Funds’ by Authorised Dealers, also accused the banks of buying and selling forex without following stipulated guidelines.
“The CBN has noticed that some Authorised Dealers have continued to buy and sell foreign exchange referred to as ‘free funds’ despite the provision of the circular of March 4, 2004 on the subject,” he had said.
He reiterated that as provided in the laws and regulations governing dealings in forex, authorised dealers shall not sell forex without appropriate documentation and disclosure to the regulatory authorities irrespective of the source of the funds.
“Accordingly, authorised dealers shall deal in eligible transactions only, and not to engage in any foreign exchange transactions on terms inconsistent with the extant laws and or regulations,” he said.

The CBN recently accused commercial banks of operating accounts either as companies or companies masking themselves as individuals for the purpose of illegally receiving money transfer flows into those accounts for onward disbursements to recipients in Nigeria.
To curb this illicit international fund transfer, the CBN in a circular titled: “Illegal International Money Remittances Through the Banking System,” by its Acting Director, Trade and Exchange Department, Mr. W.D. Gotring, directed banks to identify and freeze such accounts receiving illicit flows with immediate effects.
The banks were also directed to submit the mandate and account details of these accounts held in naira or foreign currency to it for onward reporting to the security agencies.
“The CBN therefore reiterates that deposit money banks have the absolute responsibility to conduct Know Your Customers’ Business (KYCB) checks on all their customers to ensure that they do not transact in illegal/illicit flows,” it added.

Licencing of New IMTOs
To remove oligopoly in the money transfer business, CBN has equally licensed 11 new IMTOs to join Western Union, MoneyGram and Ria, which were previously cleared by the apex bank.
Gwadabe praised the CBN’s decision, describing it as a right step in the right direction and in line with ABCON’s campaign that new operators be allowed into the market.
The new entrants are Trans-Fast Remittance LLC; WorldRemit Limited, UAE Exchange Centre LLC; Wari Limited, Homesend S.C.R.L, Small World Financial Services Group Limited and Weblink International Limited. Others are Cash Pot Limited, DT&T Corporation Limited, Fiem Group LLC DBA Ping Express and CP Express Limited.
CBN acting Director, Corporate Communications, Isaac Okorafor, said the new entrants was in line with the central bank’s efforts to liberalise the forex market, ensure liquidity and make forex more readily available to low end users.

BDCs and Rate Stability
For Gwadabe, operators in the BDC sub-sector, if given the desired support, would help bridge the gap between the parallel and interbank forex rates.
He also said BDC can also help meet the forex demand at the retail end of the market so that they can continue to enhance employment generation in the country.

The ABCON boss believes that despite the challenges facing the economy, the CBN and BDCs can work together and find sustainable solutions that can help the country wriggle out of the ongoing forex crisis and achieve full economic recovery.
Besides, ABCON has reached the final stage of automation of BDCs’ operations in Nigeria, and is seeking for CBN’s certificate of no-objection on the project. Gwadabe said the automation plan has been received by the CBN adding that a comprehensive reforms of the BDCs has already been unveiled earlier in the year.

ABCON under Gwadabe has also pledged to ensure that purchased funds would be disbursed to end users and for eligible transactions only and shall render weekly returns on purchases from the banks to Trade and Exchange Department of the CBN. He further promised to ensure strict compliance to the provisions of the anti-money laundering laws observance of appropriate KYC principles in the handling of forex transactions.