Onome Amuge
The Association of Bureaux De Change Operators of Nigeria (ABCON) has made a passionate plea to the Central Bank of Nigeria (CBN) to review its current foreign exchange rate policy for the CBN-licensed Bureaux De Change (BDCs). Currently, the CBN pegs the exchange rate for BDCs at N1,251/$, but ABCON argues that this rate is too high and is adversely affecting the operations of BDCs.
In an explanatory note on the development in the market, it is observed that ABCON’s request is coming at a time when the unofficial market rates have been trading lower than the official rate set by the CBN for BDCs.
It describes this as an unprecedented event that has not occurred in over 15 years. The lower unofficial market rates are a direct result of the CBN’s recent intervention in the foreign exchange market, which has included a large tranche of foreign currency made available to the BDCs. Despite this, ABCON is concerned that the current rate is still too high and is putting undue pressure on the BDCs.
The umbrella body of all CBN-licensed BDCs argued that the naira’s recovery has been faster than anticipated, which has resulted in a significant gap between the CBN’s selling rate and the unofficial market rates. As a result, retail end buyers have been turning to undocumented forex operators, who are able to offer lower rates.
In a letter signed by Aminu Gwadabe, ABCON’s national president, and addressed to the CBN director, trade & exchange department, the association further expressed concerns that many BDCs who funded their accounts for dollar allocations are yet to receive their allocation of dollars to meet up the legitimate critical demand of their clients due to scrutinisation of the BDCs documents for collections at the various designated centres which invariably made the BDCs vulnerable to exchange rate risk and significant loses.
It explained that with the naira appreciating in value, BDCs who purchased dollars at the CBN’s rate of N1,251/$ will lose significant income and capital if they sell those dollars at the current open market rate of N1,235/$. As such, the group requested that the CBN reviews the applicable exchange rate for the period, with the aim of further enhancing the value of the naira.
“We discovered a worrisome development where many of our members who paid for dollar allocations at N1,251/$ with a margin of 1.5% are yet to receive their disbursement. This is happening in the face of prevailing open market rate of N1,235/$ which is lower than the authorised applicable exchange rate by the CBN to the BDCs,” the statement said.
Despite the concerns raised in the letter, ABCON also took the opportunity to praise the CBN’s leadership for taking steps to recall the BDCs into the official FX window and for its efforts to strengthen the naira. The group noted that the positive effects of the CBN’s efforts have been felt more quickly than anticipated, and it reiterated its commitment to working with the CBN to achieve the government’s objectives of exchange rate stability and economic growth.
The letter further stated that ABCON’s forecasts indicate that the market is willing to self-correct and find a more realistic price point, with the naira expected to continue to appreciate in value across all markets due to the increasing sources of foreign exchange inflows. This is largely attributed to CBN’s policies, which have helped to stabilise the exchange rate and attract more foreign investment into the country.
“It is in view of the above market developments that we write to appeal to your good selves for a readjustment and review downwards our funding rate of the last tranche (2nd bidding) from N1,251/$ further down to reflect current market rate discovery. This became imperative as it is only the consideration of a readjustment downward that will enable our members to upload their holding positions,” ABCON added.
The letter went on to request that the payment process at the various disbursement centres be reviewed and automated in the near term, in order to facilitate more timely payments. The group also requested that refunds be provided to those who have funded their accounts but have not yet collected their disbursements, as the current market conditions should be taken into consideration.
In addition to the previous requests, ABCON asked the CBN to implement a cut-off time for both payments and the collection of bids. The group argued that the current open-ended system does not allow for effective administration and control of the process.
According to ABCON, its members are hesitant to bid on or collect bids due to concerns about potentially losing money in the current market conditions. The group noted that the current market reality could force members to sell their bids at a loss, which would go against the concept of price discovery and would ultimately be detrimental to the market as a whole.
The group insisted that a quick and decisive response by the CBN is critical to addressing the exchange rate disparity and restoring confidence among BDC operators. It noted further that increased confidence among BDC operators would lead to greater participation in the bidding process, which would in turn help to further stabilise the exchange rate.
