The Central Bank of Nigeria (CBN)’s Monetary Policy Committee (MPC) may have unwittingly upturned table of one of the ‘juiciest gravy trains in the Nigerian economic racket’ with the disruption of the sales of foreign exchange (forex) to the Bureau De Change (BDCs), Bismarck Rewane, Chief Operating Officer (COO) of Financial Derivatives Company (FDC) Limited has said.
For Rewane, this decision is a far reaching one, compared to the ‘boring status quo and reasons for and against the usual suspects – inflation, growth and interventions.
Even though BDCs are licensed by the CBN, the point had been reached where the program was no longer tenable and surely not sustainable.
He lamented that a country whose total exports and receipts were approximately $59.8 billion, was spending $5 billion to subsidize supposed Nigerian tourists during a covid year. ‘In other words, spending more on tourism rather than debt servicing. Therefore, the structure of the forex market needed sanitization’, said Rewane in a report titled MPC reactive in action.
“The interim solution of substituting BDCs with banks is hardly going to achieve much. You are virtually handing over the yam barns to goats to secure. In the end, there will be no yams nor goats”, he warned.
One of the options, he proffers, is to simultaneously allow banks to retail dollars as they have done in the past and make BDCs engage in retailing same but at a buy rate different from today’s subsidized rate, i.e buy dollars from the CBN at the parallel market rate less a N10 premium.
For example, if the parallel market rate is N500/$, the purchase rate from the CBN will be N490/$. If the BDCs sell at N550/$, the CBN increases its rate for BDCs to N540/$. That will be the same retail rate at the banks. This eliminates the arbitrage corridor and abuse. It will certainly reduce the demand for dollars and it must coincide with an increase in dollar supply from the CBN. This way, the naira will appreciate towards the ever elusive fair value or the REER (Real Effective Exchange Rate), which today is anywhere between N470 and N490/$.