THE Central Bank of Nigeria (CBN), last week, announced far reaching measures to sanitize the foreign exchange market (forex). Part of the measures was an increase in the minimum capital requirement of N25 million for Bureau De Change operation in the country. The increase represents 250 percent, from the previous N10 million. In addition, the new guidelines stipulate a mandatory cautional deposit which has been reviewed upward to N35m,for each Bureau de change, expected to be deposited in a non-interest yielding account in the CBN upon the grant of an approval-in-principal. Hitherto, anyone with the $20,000 deposit with the CBN can operate a BDC, hence the massive number of BDCs across the country.

Besides, the new rules demand that application for Bureaux de Change licence will henceforth attract a fee of N1 million and annual renewal fee of N250,000.Also,the CBN has warned that the ownership of multiple BDCs would no longer be tolerated and violators of the rule would be strictly sanctioned. Altogether, the apex bank said it has observed that an avalanche of rent-seeking operators were in the forex market only for profit margins, regardless of prevailing official and inter-bank rates.

However, the House of Representatives on Thursday ordered the CBN to suspend the new policy. It also summoned the CBN Governor, Mr. Godwin Emefiele, for full briefing on the matter.

We support the new guidelines if it will help to weed out unserious and unscrupulous elements in the  subsector. Activities in the subsector point to grave inefficiency and sharp practices, as some BDCs operators are reportedly using foreign exchange purchased from its window to fund unauthorised transactions. If the new rules are strictly enforced, genuine and competent BDCs are likely to dominate the forex market and this will check the depletion of the nation’s foreign reserves.

For instance, the foreign reserves which early this year was $40bn have fallen to $35bn last month, a development that may have put undue pressure on the exchange rate of the naira to the U.S. dollar. In that
regard, proper regulation of BDC operations will provide the much-needed access to forex to small-scale end users, as well as provide a veritable window for the management of exchange rate , while assisting in the fight against untoward financial outflows as well as provide economic data for policy decisions which are currently in short supply in our country.

On the surface, the 250 percent increase in the capital requirement for the operators of BDCs seems rather drastic but the ultimate goal is to sanitize the forex market and minimize the role of parrarel market which major effect has always been the worrisome devaluation of the naira.

All in all, reviewing the operations of BDCs has become imperative. Figures from the CBN show that there are about 3,208 BDCs officially registered by the apex bank, and additional 1,417 said to be waiting approval. This would bring the total number of BDCs  to 4,625 if they are granted approval, all of which is entitled to $50,0000 by CBN every week. This means that  about $12bn forex per annum, undoubtedly a huge drain on the nation’s foreign reserves.

Beyond this, there is strong indication that the operation of BDCs has encouraged the dollarisation of the economy and money laundering. We, therefore, urge the new leadership of CBN to periodically review the structure of BDCs in line with current exigencies. We do not think that the continued funding of BDCs by CBN is helping our economy much. The contrary seems to be the case. Nigeria and Kenya remain the only countries in the world where their Central Banks have continued to fund the parallel markets. This encourages multiple exchange rates and puts pressure on inter-bank rate. This is  unhealthy for the economy.

I just understood why SLS was sacked. Foreign reserve from $40b down to $35b. Now the blame goes to poor BDC operators.