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Edge's News: Naira Suffers Biggest Fall At N522/$ After CBN Forex Ban To BDCs

The ban on sales of dollars to Bureau de Change (BDC) operators in the country by the Central Bank of Nigeria (CBN) has heaped pres­sure on the foreign exchange market as Naira recorded its highest drop in history.

At the parallel market, the Naira went down by 3.35 percent to a dollar when it traded for N522 to a dollar as against N505 recorded on Tuesday, while BDCs rate changed by 3.84 percent from N500 per dollar on Tuesday to N522 to a dollar on Wednesday.


CBN governor, Godwin Emefiele, during a media briefing at the end of the Monetary Policy Committee (MPC) meeting on Tuesday in Abuja, announced the im­mediate discontinuation of the sale of foreign exchange to BDC operators, saying they have become a conduit for il­legal financial flows working with corrupt people to con­duct money laundering in Nigeria.


The CBN also suspended the issuance of new licences to money changers across the country with immediate effect and henceforth the apex bank would sell forex to deserving Nigerians through the commercial banks.

A trip by our correspon­dent to BDCs in Lagos on Wednesday revealed the mar­ket has started reacting to the new CBN action, as currency traders were seen discussing the new CBN stand.

Some currency traders in the parallel market noted that the market was closing when the news filtered in on Tues­day and they expected the value of the Naira to further depreciate in the coming days as they envisage increased de­mands.


Foremost economist, Dr. Biodun Adedipe, Chief Con­sultant at B. Adedipe Associ­ates Limited, said he is in full support of the CBN’s ban be­cause selling forex to BDCs is contrary to the BDC concept, in which they are supposed to source and sell FX indepen­dent of CBN.


He said, “They have been selling FX to customers at rates similar to ‘road-side’ (parallel) market, instead of maintaining the recom­mended margin above the buy price from CBN (the al­lowed commission). This has fuelled the persistent rise in the premium, way above the recommended maximum of five percent.


“It has turned into a racket of sorts and unfortu­nately rent-seeking activity that everyone with access to CBN has been exploiting and their activities have caused massive distortions in the FX market and through the exchange value of the Naira pushed inflation”.


Analysts at Cordros Se­curities said, “In the short-term, we expect the new de­velopment to lead to further pressure on the exchange rate in the parallel market given the lag between commercial banks settling to adjust to the CBN’s directive and knee jerk reaction from market partic­ipants induced by the urge to stockpile the greenback to mitigate an expected ex­change rate pressure.


“Overall, we believe the ef­fectiveness of the modalities in disbursing the greenback to the retail segment through the commercial banks would determine how much the current rates at the parallel market will diverge from the NAFEX rates”.


According to Ayokunle Olubunmi, Head, Financial Institutions Ratings at Agus­to & Co, while the decision is part of moves by the CBN to sanitise the foreign exchange market, it would in the imme­diate term lead to a devalua­tion of the Naira.


“It is part of the moves by the CBN to sanitise the forex market, to try and reduce the impact of speculators, be­cause there are some schools of thought that believe that the high rate we have in the parallel market is not driven by real demand but by spec­ulators, those hoarding with the belief that they can make gains from further devalua­tion of the Naira.


“We expect that in the near term it will take some time for banks to be able to appro­priately address the demand and the rate will actually go up. We expect that there will be further devaluation of the currency but over time it is expected to moderate.


“So initially we expect rates to go up because all the BDC operators will be sourcing for dollars from other sources but ultimately if they can sanitise the market and the banks can provide appropriate avenues then we can see the rates re­turn to normal,” he said.

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