The Central Bank of Nigeria Forex Sales to Bureau de Change (BDC) Operators and the Depreciation of the Naira: Areas for Legislative Interventions
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In a renewed effort to address the naira's free fall, the Central Bank of Nigeria (CBN) has launched a number of noteworthy initiatives, such as investigating and clearing the backlog in foreign exchange, restricting the use of foreign exchange for medical and educational travel, raising the minimum share required of BDCs, purchasing a $3 billion facility from the African Export-Import Bank (AFREXIM Bank) to increase foreign exchange liquidity, issuing various regulatory notices to commercial banks regarding foreign exchange. On July 27, 2021, the CBN discontinued the sale of foreign exchange to BDCs accusing them of abuse and contravention of their licenses, and Nigeria’s FX regulations. The BDC operators were said to have deviated from the objectives they were set up and had become agents facilitating graft and corruption in the country. The most current circular by the CBN, titled "Sale of Foreign Exchange to Bureau de Change Operators to Meet Retail Demand for Eligible Invisible Transactions," authorized the sale of foreign exchange to eligible BDC operators in Nigeria. The policy sought to close the growing exchange rate difference and address the enduring anomalies in Nigeria's retail foreign exchange market. Based on the lower band rate of completed spot transactions at the Nigerian Autonomous Foreign Exchange Market as of the previous trading day, dated February 27, 2024, the allotment of Forex to the BDC is reportedly sold at a rate of N1,301/$. Thus, BDCs are expected to purchase at ₦1,301 and sell for ₦1,314.01. Despite the measures put in place by the CBN to stabilize FX, the naira has continued to experience a free fall. As of 15th March, 2024, the exchange rate at the Nigerian Foreign Exchange Market (NFEM), stood at ₦ 1, 572. 502 per $1. The fact that the CBN's initiatives have solely addressed the monetary policy aspects of the problem thus far contributes to the current measures' limited efficacy. The Naira is still affected by other factors, some of which are outside the purview of the CBN. In order to improve the effectiveness of exchange rate reforms and promote economic stability and growth in Nigeria, addressing the exchange rate challenge thus calls for a comprehensive and multifaceted approach that incorporates structural reforms that boost production and non-oil export capacities, effective policy implementation, strengthened institutions, and sustainable economic strategies. Considering the effect of the Naira depreciation and the dollar scarcity on the Nigerian economy and the need for urgent measures to tackle the menace, this brief recommends as follows; i. The National Assembly through its Senate and House Committees on Banking, Insurance and other Financial Institutions may wish to hold an interactive session between them and the Central Bank Governor, the Commercial Bank Managing Directors, the CSO, EFCC, NDIC, ICPC, and other relevant stakeholders to brainstorm and find lasting solution to the free fall of Naira; ii. Given the CBN’s statutory independence in monetary policy management, there is a little window for direct legislative interventions in the management of the exchange rate. However, The National Assembly through its oversight function may wish to carry out investigation on and improve oversight of the activities of CBN and commercial banks, especially as it relates to the procedures for the assessment and payment of valid foreign exchange claims.