Intensifying Regulatory Enforcement to Stabilise FX Market


After adopting several measures to stabilise the Foreign Exchange market and help the naira find its footing against other major currencies, the CBN appeared to have hearkened to call on it to step up enforcement of its regulation with the recent clampdown on erring currency traders. Olaseni Durojaiye writes

The efforts of the Central Bank of Nigeria (CBN) to stabilise the Foreign Exchange (FX) market in the country assumed another dimension recently with the raid on offices of some Bureau de Change and arrest of operators selling currencies, especially the United States Dollar, above the stipulated exchange rate of N385 as at the time.

During the exercise, operatives of DSS stormed BDC offices at the Murtala Muhammed International Airport and the Hajj Camp area of the local airport, made arrests and closed down offices of operators that were found wanting. While the action immediately drew mixed reactions from the polity, opinions amongst stakeholders have since begun to shift towards support for the action particularly with the emergence of details surrounding the raids and the immediate gains from the exercise.

THISDAY had earlier reported that on the interbank FX market, the spot rate of the naira climbed N1.45 to close at N304.75 to the dollar penultimate Friday, stronger than the N306.50 to the dollar the previous day.

Also, on the parallel market, the Naira appreciated by N5 to trade at N455 to the Dollar at penultimate weekend, compared with N460 to the Dollar the day before. But on the Bureau De Change segment, the nation’s currency depreciated to N405 to the Dollar from about N400.

It will be recalled that the CBN had at various times introduced different measure to ensure availability of forex. The highpoint was the adoption of the market-driven flexible FX regime in June even though the apex bank reserved the powers to intervene at critical moments. But the shortage continued as the Naira refused to gain strength against major currencies.

As part of efforts to ensure availability of FX to end users, especially manufacturers and other critical importers at stipulated agreed rates in both the interbank and parallel markets, the CBN decided to allow BDCs to buy USD from Travelex at N381 per USD. But many manufacturers were still unable to do so and where the currency was available, they buy it at higher prices.

THISDAY check revealed that the raid was the culmination of stakeholders’ meeting convened by the apex bank to “sensitise and sanitise” the FX market. Weeks before the raid commenced, the CBN had gathered both licensed and unlicensed currency operator to meetings in Abuja, where it engaged them on the need to comply with the stipulated exchange rate. A source at the meeting told THISDAY that security agencies including the DSS were part of the meetings. The meetings became necessary due to the gapping disparity in FX rates among the three segments of the market.

THISDAY learnt that many foreign investors present at the meetings expressed their displeasure at the wide disparity between the three segments of the market and hinged their coming into the Nigerian economy on whether or not the disparity is addressed.

Enforcement of Regulations

For long, many observers of the FX market had fingered compliance as a major bane of the market. Others called on the CBN to step up its enforcement of FX regulations. Those who clamoured for a stricter enforcement, among them manufacturers, argued that they were unable to procure FX at the official rate leaving them at the mercy of currency speculators, many of whom, they argued, operate unlicensed BDC.

Speaking with THISDAY during an interview, President of the Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, had lamented that members of MAN still buy FX, especially the USD, at prices far higher than the official rates at both the interbank and parallel markets. He had added that even with the introduction of the CBN circular directing that 60 per cent of FX in the economy should be sold to operators in the real sector; manufacturers were yet to benefit from the directive and urged the CBN to enforce compliance of the directive.

Another analyst, Rotimi Oyelere, also noted the need for the CBN to step up its monitoring of Money Deposit Banks with the view to ensuring they comply with its directives on FX trading. He had explained that poor monitoring could scuttle the apex bank’s efforts to stabilize the FX market.

“The apex bank must intensify its regulatory obligations to ensure banks strictly adhere to guidelines and business regulations,” Oyelere had stated in an earlier interview.

Stakeholders’ Reactions

Reactions from analysts, stakeholders and observers have, however, supported the raid even as some of them feared that the raid may lead to an initial hoarding on the part of the BDC, which may in turn adversely affects the Naira. But reports of hoarding was yet to be recorded as of Thursday, rather, the Naira has continued to appreciate against the USD in the aftermath of the raid.

Speaking with THISDAY, President, Association of Bureau De Change Operators of Nigeria (ABCON), Mr. Aminu Gwadabe, welcomed the raid and insisted it should be seen as part of efforts to sensitise and sanitise the market. He argued that the BDCs that were raided were unlicensed as he was yet to get a complaint from registered members of the association stating that their offices were raided by the DSS.

“First and foremost, it wasn’t a raid, it was enforcement of regulation. The action is in line with the spirit of Article IV of the International Monetary Fund. Before now, the CBN convened a meeting with both licensed and unlicensed BDC; the security agencies were also in attendance. We pledged our cooperation at the meeting, even though we had earlier been given the privilege to regulate ourselves. As we speak no licensed operator has complained to me as the President of ABCON that his office was raided.

“We support any action that will ensure compliance with regulation. The sanitisation has begun to yield result as the Naira appreciated against the Dollars. A situation where some people feel they are above the law shouldn’t be encouraged; it is not done anywhere, I have not seen where government encourage open trading in currency the way some people do. The bottom-line is that the action should be seen as enforcement of regulation and we support it; and urge other stakeholders to see it as so including the Press,” Gwadabe stated.

However commenting on the development in the FX market, an analyst at Afrinvest West Africa Limited told THISDAY that, “In the interim, we expect recent developments to constrain supply at the BDC/parallel segments as operators withhold supplies.

“We imagine the possibility of this also leading to further fragmentation of the FX market, taking the parallel market further underground in view of the close scrutiny by security agencies. Thus, whilst parallel market rate could strengthen in the interim, the medium-term outlook points to a more volatile currency,” the unnamed analyst argued

But Jacobs, who also welcomed the raid, allayed fears of the action leading to hoarding. Blaming the price disparity between the three legs of the market on greed, he maintained that if the currency operators sell FX at the CBN stipulated price band, the current FX challenge wouldn’t be as severe as the economy currently witnesses.

“Because of irregularity in the FX markets, if the raids are to keep them in check and make them sell within the CBN prescribed margin that should be a welcome development because everybody should be concerned and work towards the growth and development of the economy,” he stated.

Continuing, he explained that, “It could lead to hoarding at first, eventually they would have to sell. They can’t hoard for long; they are in business to make money and would have to pay their workers, so eventually they would have to sell. The main problem is greed. If the BDCs sell at the prescribed price, FX will be more available and at friendly price for end users to buy but people prefer to exploit the situation to make quick and huge profits,” he concluded.