Foreign exchange: Parallel market in search of relevance

The Nigerian Foreign Exchange Market plays host to various kinds of players, each contributing to the challenge in the multiplicity of rates and the ever-widening gulf between the official and the parallel market rates.

Some of the notable players in the market are the Nigerian Interbank Market, the Bureau De Change (BDC) and Financial Market Dealers Quote (FMDQ) on whose platform the spot rate and the futures rate are quoted.

Also, the Parallel or Black Market and off course, the Central Bank of Nigeria (CBN), which is vested with the task of regulating the market.

Since the CBN removed its peg on the official exchange rate in June 2016, leading to a flexible exchange rate policy, the demand for forex by importers has put untold pressures on the exchange rate.

The depreciation of the Naira and the widening gap between the interbank and the parallel market rates triggered a blame game among the major players in the market with the parallel market receiving the largest chunk of the blame.

In a bid to restore sanity to the parallel market, operatives of the Department of State Services (DSS) raided the market toward the last quarter of 2016.

The markets in Lagos, Abuja, Kano and Onitsha were among those raided; consequently the traders went underground to ensure that their businesses survived.

Since the raid, uneasy calm descended on the market with some stakeholders questioning the very existence, relevance and the continued operation of the parallel market.

Alhaji Aminu Gwadabe, President, Bureau De Change Operators of Nigeria (ABCON) says that the parallel market was damaging to the Nigerian economy.

Gwadabe is of the opinion that some Nigerians use the parallel market as a tool for speculation and round tripping; adding that selling the dollar far above the recommended rate is unacceptable.

Gwadabe challenges anyone with the intention of trading in the forex market to approach the lawful authorities vested with the powers to admit traders into the market.

The ABCON boss decries the inability of the general public from distinguishing between a licensed BDC operator and a currency trader on the street.

“BDCs are registered by the Corporate Affairs Commission (CAC) and licensed by the CBN to transact in foreign currencies.

“They have registered offices nationwide and do not stand on the streets to sell dollars or other foreign currencies.

“Since they are licensed by the CBN, they follow the guidelines of operation as laid down by the regulator and any infraction is met with appropriate punishment,’’ Gwadabe says.

According to him, ABCON is having the challenge between street traders and BDCs.

He advises the public to check the CBN website for the list of registered and licensed BDC operatives closer to them.

Mr Harrison Owoh, a financial expert and BDC Operator, says that street hawking of foreign currency is not good for the image of the country.

Owoh advises that all hawkers of foreign currency should approach the CBN to make their businesses legitimate.

According to him, some street currency hawkers disguise as BDC operators in dealing with unsuspecting members of the public.

He says that currency speculation has attained geometric progression because of activities of some street currency hawkers at the parallel market.

The CBN on its part is unequivocal in affirming that the foreign exchange regulation in the country forbids trafficking in currency.

The CBN Governor, Mr Godwin Emefiele made the assertion while addressing newsmen at end of the November Monetary Policy Committee (MPC) meeting in Abuja.

While endorsing the crackdown on parallel market traders by officials of the DSS, Emefiele says that it is the duty of the operatives to enforce the law and ensure that currency hawkers are forced out of the “illegal trade’’.

The governor, who notes that it was demeaning for traders to hawk currency on the streets, urges the traders to legitimise their business by applying for a BDC license.

But Prof. Sheriffdeen Tella, a Senior Economist at the Olabisi Onabanjo University, Ago-Iwoye, Ogun, says it is unfair to stop the parallel market from existing since the official market is deficient in meeting the forex needs of Nigerians.

“You cannot stop the parallel market from existing because the official market is not sufficient to meet the dollar needs of Nigerians,’’ the don says.

Tella notes that the shortfall in receipts from the sale of oil has translated into the incapacity of the CBN to adequately finance its official window.

Tella, however, observes that in spite of the modest contributions of the parallel market in meeting some forex needs of importers, there are a lot of risks in dealing with parallel market traders.

The don says that some of the currency traders were involved in selling counterfeit currencies, adding that it is difficult to go back to them after transacting businesses since they operate on the streets.

The economist appeals to the CBN to ensure that people do not transfer money from the official window to the parallel market.

Mr Yusuf Bello, a civil servant, observes that there is hardly a bank in the country where you do not see a currency trader dealing very closely with officials of the bank.

Bello therefore, urges the CBN to exercise very close supervision of some of these banks to forestall the movement of forex from the official window to the parallel market.

Given the present economic reality, the parallel market seems to be a necessary evil that the country needs to contend with.

It is a truism that the CBN, within the present economic reality, cannot meet the forex demand by importers and other well meaning Nigerians seeking forex for medicals or school fees abroad.

Available records from ABCON indicate that the monthly forex consumption of Nigerians is in excess of two billion dollars in the face of an external reserve of less than 28 billion dollars.

It is pertinent to also recall that not everyone seeking forex can meet the requirement of BDCs as stipulated by the law governing their operations; as such, the parallel market becomes a safe haven for this category of businessmen.

The CBN, as the regulator of the forex market, has a daunting task of dealing with the multiplicity of rates and the widening gap between its official window and the parallel market.

The survival and relevance of the parallel market depends largely on how the apex bank can effectively manage its exchange rate policy and block the flow of forex from the official window to the parallel market.