%20(5).jpeg)
This newest dip by the local currency against the greenback
comes amid demand pressure against supply, despite the announcement of
operational mechanism for Bureau De Change (BDC) Operations in Nigeria by the
Central Bank of Nigeria (CBN).
Parallel market FX dealers were on Thursday, August 24
buying dollar at N895 while selling at N905, according to data by AbokiFX, an
online platform that tracks the exchange rate on the parallel market. Before
now, the naira had at the parallel market remained flat at N900/$ while at the
I&E window it dipped to N773.42/$.
“In the bonds space, investors remain bearish notably at the
mid-long ends of the market, due to rising uncertainties over the country’s
precarious FX situation as well as the recent pause in fiscal reform
direction,” said Lagos-based Vetiva analysts in their August 21 fixed income
report. “It appears that the temporary reprieve the naira saw following the
announcement of the $3billion Afreximbank loan, is starting to dissipate,” they
added.
The CBN recently said among others that the spread on buying
and selling by BDC Operators shall be within an allowable limit of -2.5percent
to +2.5 percent of the Nigerian foreign exchange market window weighted average
rate of the previous day.
“In my view, there is need for a major policy shift on the
activities of the BDC beyond just mandating them to buy and sell within the
-2.5percent and +2.5percent price margin.
“First, in the past 6-8years, there was frivolous issuance
of BDC licenses, and I believe the CBN must rise up to the occasion to clean up
what I consider to be a probable error on its part,” an informed market
analysts told BusinessDay.
“I have not seen anywhere in the world, where BDCs or Money
Services Businesses are as many as we have in Nigeria. It was like a racketing
of subsidy, especially, as the CBN was selling FX to the operators at
artificially subdued official rate while the BDCs were selling to the market at
‘unholy’ spreads, well outside of the guidance of the CBN,” he added.
Speaking further, our source said, “the CBN cannot monitor
the activities of the BDCs we have today, given the number of operators. If we
must maintain this volume of BDCs, which I think is unnecessary in a
liberalised FX market, and with the level of banking branch penetration we have
today.
“BDCs were very relevant when we had less bank branches and
relatively weak payment systems. It’s interesting today that most of the BDC
operators are clustered around bank branches, so it means that banks can
effectively serve that role.
“More so, if we must have as much BDC operators, why not
make them agents of banks, as I believe that may help the CBN to better
coordinate their activities. In addition, there should be restriction on BDC
operation of cash services to ensure effective KYCs and reporting”.
In addition to CBN guideline for spread on buying and
selling by BDC Operators, the apex bank also asked for mandatory rendition of
BDC Operators statutory period reports on the Financial Institution Foreign
Rendition System (FIFX) which it said has been upgraded to meet individual
operator’s requirements. The CBN also said that BDCs non-rendition of returns
would attract sanction which may include withdrawal of operating license.
“Whoever buys from BDCs or sells to them should get
electronic credit/debit and if such person needs cash, they can access the FX
cash at the bank, where proper reporting and KYC can be done.
“Again, this new circular has not indicated expected source
of supplies to BDCs and I can only hope that CBN is not planning to reinitiate
direct sales of FX to the BDCs, as that may possibly just set back the
progress.
“Rather, I would expect the CBN to integrate BDCs into the
formal window, by allowing them to bid for FX at the official market through
their banks, with hope they would sell whatever they buy from the market within
48hours or resell it back to the official market.
“I believe this should be considered, in addition to
organising the BDCs for a more effective coordination and better role in the
financial system. This would help monitor their activities and weed out
speculators and those with rent seeking interest,” the informed financial
market analysts further noted.
Earlier this week, Lagos-based United Capital analysts said
they expect continued pressure on the Naira across all market segments, “given
that FX pressures will persist as Dollar earnings remain weak. However, we
expect to see the appreciation of the Naira continue as the CBN continues to
implement its recent FX policies”. -BusinessDay