Revisiting the CBN Retail Foreign Exchange Policy

Many Nigerians who depend on banks to meet their foreign currency needs could face difficulties very soon as some lenders have introduced more restrictions on end-users’ access to dollars through their local currency debit cards.

Last year, the Central Bank of Nigeria suspended sales of dollars to Bureau de Change operators in a bid to curb the rapid depreciation of the local currency and conserve foreign exchange reserves.

The CBN said the ban on the sale of currency to CDB operators was necessary as most of them have become conduits for illicit currency flows and corruption.

“We are concerned that the BDCs have allowed themselves to be used for corruption. They turned away from their goals,” CBN Governor Godwin Emefiele said at the time.

After the announcement, the apex bank ordered commercial banks to immediately set up outlets at designated branches for the sale of foreign currency.

He advised commercial banks to ensure that no customers were turned away or refused currency, provided documentation and all other requirements were met.

Those who are expected to approach the banks for their foreign currency needs are Nigerians who wish to pay school fees, medical bills and in need of travel allowances.

However, many lenders have been unable to live up to expectations, especially in their new role as currency retailers, as dollar shortages persist despite the country’s currency reserves picking up at some point.

For example, some banks have continued to thwart efforts by recipients of diaspora remittances to access hard currency with flimsy excuses, including “no network” and requiring recipients to open an account. domiciliary with them before being able to access their currency.

The survey showed that many Nigerians who need a basic travel allowance and payment of school fees or medical bills are still unable to freely access dollars from their banks without going through hurdles, as the banks bring in the dollar due to the shortage.

A banker said that the CBN has reduced the volume of dollars allocated to banks for retail purposes, which has impacted the ability of banks to distribute dollars to end users in accordance with the bank’s directive. regulations.

Last week, some banks informed their customers of new restrictions on the use of the debit card to make payment for foreign exchange purchases.

Three of Nigeria’s major lenders, namely First Bank, Zenith Bank and United Bank for Africa, have announced the suspension of the use of debit card to access foreign currency or restrict the amount they can withdraw using their debit cards. debit.

UBA Plc has stopped using the naira card to withdraw dollars from ATMs outside the country or make international payments at point-of-sale devices.

Zenith Bank Plc said it had “temporarily suspended” the same transactions on ATM and PoS devices. It reduced the spending limit on web transactions using naira cards to $20 per month from $100, citing “today’s economic realities” in a note to clients.

First Bank of Nigeria Ltd. set the limits on his naira Mastercard and naira credit card at $50 per month.

The reason given by the UBA for its discontinuation of the use of naira debit cards was based on its efforts to reduce transactions that would require it to start looking for foreign currency.

The restrictions have further reduced access to foreign currency for many end users, who until now would have ignored the banks’ decision and contacted BDC operators to access their currency needs.

However, with the suspension of dollar sales at dollar retail outlets by the regulatory bank, many Nigerian forex end users have been incapacitated and may need to devise their own means of accessing dollars. from all the sources they can find.

So far, CBN’s currency sales to BDC operators have been mainly aimed at facilitating access for end users, stopping seemingly scarce foreign currencies and supporting the local currency exchange rate.

But according to CBN figures, it has instead led to the astronomical growth in the number of BDCs in the country, from just 74 in 2005 to over 5,500 BDCs by July 27, 2021, when the regulator imposed a ban on BDC.

Analysts have questioned the huge growth in the number of BDCs, which represents an increase of about 1,345.45% in 16 years.

Such quantum growth in the number of operators is a clear demonstration of regulatory laxity, which did not take into account the clear objectives of setting up the sub-sector and its possible impact on the economy.

Sources said many people were at one point selling BDC licenses for up to N10 billion given the lucrative nature of the business as charlatans took over the business without the regulatory bank does anything about it.

However, despite the flaws in the operation of the BDCs, the CBN should not have thrown the baby out with the bathwater. Since the suspension of dollar sales to the subsector, the local currency has not stopped the hemorrhage but rather the naira has depreciated to around 585 naira to the dollar in the parallel market as end users scramble to obtain foreign currency to meet their needs.

It appears that the measures taken by the regulatory bank to fight against embezzlement on the foreign exchange market and management are not enough to stop the unscrupulous practices of operators in the financial sector.

According to the investigations, some banks may have misappropriated the dollar allocated to them to resell them to end users on the black market to make huge profits, further compounding the naira’s woes.

In all of these areas, there is still room for the BDC sub-sector to bridge the gap and provide stability in currency management.

The CBN could avail the services of the BDCs as international remittance agents, so that Nigerians who wish to collect their remittances from the Diaspora can do so through the reformed operators of the BDC with guidelines clear lines that will eliminate abuse and manipulation.

What the CBN should do is find common ground that will ensure that it significantly reduces the number of those holding the BDC license and ensures that sanity is restored to the way licenses are issued and regulation strictest in the sub-sector.

Many of the more than 5,000 operators in the BDC license are intermediaries who do not have offices but prefer to wait to collect the CBN forex allowance and then pass it on to the black market.

The CBN should discourage this by restructuring the system and ensuring that only qualified, fit and suitable operators remain to operate in the market.

This will ensure that small currency holders and users have access to currency whenever they need it with minimal hassle compared to what is happening today.

The CBN should also not shy away from brandishing the big stick against violators of its foreign exchange regulations regardless of the status of those operators. This will bring back transaction efficiency in currency management and ensure that Nigeria has a grip on its currency inflows and outflows.

The current system does not appear to be working and the CBN should review the process comprehensively to ensure efficiency and proper market regulation.

Ultimately, the regulatory bank should set a transition period during which operators, both banks and BDCs, would be allowed to develop the CBN’s independent currency supply mechanism in a transparent manner, which will guarantee order in the market.

Mayowa is an international financial journalist based in Lagos

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