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Nairaland Forum / Nairaland / General / Business / CBN Stops Forex Sale To Bdcs, Naira Sinks To 285/dollar (874 Views)
CBN Suspends 19 Banks From Forex Sale To BDCs / Naira Sinks To All-time Low Of 365.25/dollar / CBN Stops Sales Of Forex To Bureax-De-Change (2) (3) (4)
CBN Stops Forex Sale To Bdcs, Naira Sinks To 285/dollar by d1ckr0man(m): 7:41am On Jan 12, 2016 |
The Central Bank of Nigeria on Monday
stopped the sale of foreign exchange to all the
2,786 licensed Bureau De Change Operators
across the country.
The ban was announced by the CBN Governor,
Mr. Godwin Emefiele, at a special media
briefing held at the bank’s headquarters in
Abuja just as the naira traded at 285 against
the dollar at the parallel market on Monday
from 278 on Friday.
He said with the decision, the CBN would no
longer provide foreign exchange to the BDCs,
adding that henceforth, all BDC operators must
source for foreign exchange from autonomous
sources.
The governor said any BDC operator that was
not satisfied with the central bank’s decision
should return their operational licence to the
CBN and ask for the refund of their N35m
deposit.
Emefiele said Nigeria was the only country in
the world where the central bank would
provide the BDC operators with foreign
exchange, adding that with the continued
depletion of the foreign reserves, such funding
was no longer sustainable.
For instance, the governor said that between
July 2014 and January this year, the country’s
external reserves had suffered a great pressure
from speculative attacks, round-tripping and
front-loading activities by actors in the foreign
exchange market.
These, he noted, had led to a decline in the
reserves from $37.3bn in June 2014 to $28bn
currently.
Emefiele lamented that due to the speculative
attack on the nation’s currency, the central
bank’s monthly foreign earnings had fallen
from a high of $3.2bn to as low as $1bn
monthly.
He lamented that while the country’s reserves
were declining, the average food import bill
was witnessing a steady increase from
N148.3bn per month in 2005 to an average of
N917.6bn in the first nine months of 2015.
Emefiele said following the ban on the sale of
forex to the BDCs, the central bank had
decided to remove the restriction placed on
cash deposits into domiciliary accounts.
This implies that commercial banks in the
country are now free to accept foreign
exchange cash deposits from their customers.
“Following the drop in crude prices from a
peak of $114 barrel in July 2014 to as low as
$33 per barrel in January 2016, the country’s
reserves have suffered great pressure from
speculative attacks, round-tripping and front-
loading activities by actors in the foreign
exchange market.
“This fall in oil prices also implies that the
CBN’s monthly foreign earnings has fallen
from as high as $3.2bn to current levels of as
low as $1bn. Yet, the demand for foreign
exchange by mostly domestic importers has
risen significantly.”
He added, “In view of the above, the
management of the Central Bank of Nigeria has
reached the following decision, which takes
immediate effect. The bank will, henceforth,
discontinue its sale of foreign exchange to the
BDCs. Operators in this segment of the market
will now need to source their foreign exchange
from autonomous sources.
“They must, however, note that the CBN will
deploy more resources to monitoring these
sources to ensure that no operator is in
violation of our anti-money laundering laws.
The bank will now permit commercial banks in
the country to begin accepting cash deposits of
foreign exchange from their customers.”
Emefiele said the decision to discontinue the
sale of foreign exchange to the BDCs was
arrived at following emerging evidences that
the BDCs had abandoned their primary
mandate of meeting the forex demands of
retail users thereby, turning themselves into a
channel of illicit cash flows.
The governor wondered why the forex market
had yet to stabilise despite all measures that
were earlier put in place by the central bank to
avoid further depletion of the reserves.
Rather than help to achieve the objectives for
which they were licensed, Emefiele said the
BDCs were involved in rent-seeking, which led
to widening margins and profits from the
foreign exchange market.
He said given this rent-seeking behaviour, it
was not surprising that since the CBN began to
sell foreign exchange to the BDCs, the number
of operators had risen from 74 in 2005 to
2,786 currently.
In addition, he said the CBN was receiving
close to 150 new applications for the BDC
licences every month, adding that more
disturbing was the financial burden being
placed on the bank and the nation’s limited
foreign exchange.
He said, “The CBN sells $60,000 to each BDC
per week. This amount translates to $167m
per week, and about $8.6bn per year. In order
to curtail this reserve depletion, we have
reduced the amount of weekly sales to
$10,000 per BDC, which translates into
$28.4m depletion of the foreign reserves per
week and $1.476bn per annum.
“This is a huge haemorrhage of our scarce
foreign exchange reserves and cannot
continue, especially because we are also
concerned that the BDCs have become a
conduit for illicit trade and financial flows.”
He said, henceforth, the CBN would prioritise
foreign exchange for the most critical needs
such as matured Letters of Credit from
commercial banks; importation of petroleum
products, critical raw materials, plants and
equipment; and payment for school fees,
Business and Personal Traveling Allowances.
He said contrary to insinuations that the CBN
was not providing funds for some critical
transactions, the bank had between June and
December last year provided the sum of
$288m to banks for payment of school fees
abroad.
Emefiele said this amount, when spread over a
one-year period, implied that a total sum of
$600m was provided for school fees related
transactions
For BTA and PTA, the governor said about
$180m was provided to travellers between June
and December 2015, thus translating into
about $400m for a one-year period.
He said with the declining revenue from oil,
which had impacted negatively on the nation’s
reserves, there was a need for Nigerians to
reduce the level of their overseas shopping.
Reacting to the latest developments, the acting
President, Association of Bureau De Change
Operators, Alhaji Aminu Gwadabe, said in a
telephone interview with one of our
correspondents that with the stoppage of
dollar sale to the BDCs, the naira would be
further devastated in the market, adding that it
would increase activities in the ‘black market’.
He said the naira at the BDC segment of the
forex market weakened to 285 against the
dollar on Monday, from 278 on Friday, adding,
“Once the sale to the BDCs is stopped, we will
be looking at 350 to 400.”
Gwadabe noted that the BDC segment had an
important role because it had contributed over
N150bn as compulsory deposit to the CBN at
just three per cent interest rate.
“This is a sector that provides nothing less
than 25,000 employment opportunities and
there is no country in the world where there is
no official bureau de change. In fact, in Dubai,
banks source their forex from the BDCs,” he
added.
On where the BDCs would turn to for dollar
supply, “Right now, people even travel to
Ghana and other countries to source for
dollars. Definitely, that is what will be
happening because the banks are not allowed
to sell.”
The Head of Investment Research, Afrinvest
West Africa Limited, Mr. Ayodeji Ebo, is of the
view that the ban on forex sale to the BDCs
does not solve the problem regarding the
pressure on the naira as it has not addressed
the demand for the greenback.
A currency strategist at Ecobank Nigeria, Mr.
Kunle Ezun, described the ban of forex sale to
the BDCs as “double jeopardy and counter-
productive,” but noted that the lifting of
deposits into domiciliary accounts was a
welcome development that would not have a
major impact on the naira outlook.
Ezun said, “In the immediate, it will help to
bring dollars outside the banking system in.
The impact would have been significant if the
CBN has said it will allow transfer out of the
system.
“Today, the BDCs are a segment of the market
and they just went through a recapitalisation
process. The BDCs service a portion of the
market that you can’t wish away. If today you
say you are not selling to them, then who
takes care of that portion of the market? This
is another restrictive measure that will have a
negative effect on the naira.” |
Re: CBN Stops Forex Sale To Bdcs, Naira Sinks To 285/dollar by brunofarad(m): 7:45am On Jan 12, 2016 |
Recession Imminent |
Re: CBN Stops Forex Sale To Bdcs, Naira Sinks To 285/dollar by ojay2053(m): 8:19am On Jan 12, 2016 |
Hmm, I hope we're heading to the right direction with these unstable policies. |
Re: CBN Stops Forex Sale To Bdcs, Naira Sinks To 285/dollar by Bevista: 8:19am On Jan 12, 2016 |
A currency strategist at Ecobank Nigeria, Mr. Kunle Ezun, described the ban of forex sale to the BDCs as “double jeopardy and counter- productive,” but noted that the lifting of deposits into domiciliary accounts was a welcome development that would not have a major impact on the naira outlook. Ezun said, “In the immediate, it will help to bring dollars outside the banking system in. The impact would have been significant if the CBN has said it will allow transfer out of the system.Does the bolded, by any means, suggest that the CBN has not authorized for outbound wire transfers from the deposited cash dollars? |
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