In an announcement after the July MPC meeting, Nigeria’s central bank governor, Godwin Emefiele, announced that the CBN bank will no longer sell foreign exchange to bureau de change operators (BDCs).
The CBN will also no longer issue fresh licences to BDCs.
The governor said that that the central bank sells about $110 million to BDCs every week. Going forward, those funds will be made available to commercial banks to meet genuine demand for foreign exchange.
Going forward, banks will reorganise their operators to cater to customers who use to patronise BDCs.
Emefiele said the banks must make every effort to meet genuine demand as soon as possible.
With this move, the CBN seeks to reign in speculative demand for foreign exchange and take on the challenge of meeting all genuine demand.
Reactions to this move have been mixed.
Some traders say that the action is probably counterproductive. They say that the central bank may be underestimating the size of demand outside the official market and that the policy change will do little to address the sharp disparity in the official and parallel market exchange rates.
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However, others say that the move is correcting a long-standing anomaly. BDCs are licensed to meet demand for personal and business travel and not for big-ticket items that should translate to demand of over $100 million a week. Governor Emefiele noted that the CBN is the only central bank in the world that sells foreign exchange to BDCs. Some market operators also note that “there is nothing that BDCs do that banks cannot do better” and that over 6,000 BDCs add little or no value to the market today.
That said, financial markets will react to news and the announcement is expected to spark volatility in the parallel market for foreign exchange, more so because of the timing of the announcement. The move is coming in late July when demand for foreign exchange for personal travel and school fees is typically high.
