By Modupe Gbadeyanka
The Central Bank of Nigeria (CBN), as part of its commitment to keep the exchange rate of the Naira and Dollar stable at the foreign exchange (forex) market, started the supply of forex to authorized traders at the market.
The first was to make forex readily available to investors as well as exporters of some essential products and materials and it created the Investors and Exporters (I&E) FX window.
Thereafter, the apex bank started the regular supply of forex to Bureau De Change Operators (BDCs) and since then, the exchange rate at the commercial banks and BDCs has been narrowed, which many had called for in the past.
According to the International Monetary Fund (IMF), the CBN operates up to five different forex market segments and they are the CBN official window rate of N305/$1, a retail/wholesale window rate of N325-330/$1, the I&E window rate of N360/$1, the invisible transactions through BDC and SMEs separate window rate of N360-365/$1, and some government transactions (e.g. FAAC allocations) at a rate closer to N320-325/$1.
But analysts at Investment One believe the supply of forex to BDC operators is doing the nation’s economy more damage than good. In a report last week, it said, “Evidently, the adoption of liberal dollar supply to BDCs has done much harm to the economy.”
In the report titled Multiple Exchange Rates, one of the firm’s analysts opined that, “The multiple exchange rate regime that we operate promotes currency speculation at the expense of real production domestically.
“You would see some traders who would sell dollar at a higher price in a window having accessed it at a cheaper price in another window, taking advantage of price differences in the market.”
It was stated in the report that BDCs may have graduated from merely meeting the retail requirements of travelers to becoming hard-core suppliers of foreign exchange for money laundering and trafficking purposes!
The motivation for money laundering and currency trafficking has taken root from the free access to public sector dollars made available to BDCs by CBN. Here is another report that puts more colour to the picture.
While currency speculation has led to the depreciation in Naira on several occasions, other illegal practices by politically exposed persons have starved the industrial and manufacturing sector of forex for raw materials, machinery and spare parts hence inhibiting potential for economy growth and development, the report disclosed.
Investment One advised the CBN to return to the regime of a single market for forex like Nigeria did in 1987 before it introduced the multiple foreign exchange policy to facilitate non-oil inflows into the Deposit Money Banks and mitigate the depreciation in the local currency.
The investment company noted that, “Our neighboring country, Ghana grows faster, and yes, they operate a flexible market-based exchange rate regime.”
However, it pointed out that, “Of course, no two economies are the same. However, economists have always favoured a single exchange rate system over a multiple exchange regime. Former CBN Governor, Professor Charles Soludo, speaks in support of the above in this write up.”
