The Central Bank of Nigeria (CBN) has banned the sale of FOREX to the Bureau De Change (BDC) operators in a bid to tackle illegal forex tradings in Nigeria.
Godwin Emefiele, the governor of the CBN, made this known while addressing the press during the MPC briefing on Tuesday, 27th July 2021.
According to Emefiele, on average, the CBN trades US$110million weekly FX of US$20,000 each, to over 5,000 BDCs with total annual sales of US$7.2 Billion to Nigerian BDCs – the only place on planet earth where CBN sells FX directly to BDCs.
The Central Bank also confirmed that they will no longer license new BDC operations in the country and have also halted all current processes for new licenses.
While the CBN gave the reason for the ban as abuse of the BDC mandate and failure to intervene in the retail market to lower rates, the Apex bank also promised to deal “ruthlessly” with Nigerian banks caught in these illegal acts.
According to CFG Advisory:
“The implication is US$7.2Billion allocation will now be moved to the banks who will open dedicated tellers to process valid for FX transactions.
“The immediate market reaction is an anticipated parallel market spike. (It should be noted that BDC were set up to serve retail markets with transactions under US$5,000.) But this might not be sustainable as consumers did not benefit from the official rates BDC were given as they engaged in arbitrage with the parallel markets.
“This situation offers the banks to create a viable FX interbank market with transparent bid and offer rates that Nigerians can access via the existing interbanking platforms.”
However, it is not clear how long the ban will last.
In a similar development, the CBN retained the monetary policy rate (MPR) at 11.5 percent. The MPR is the rate at which the apex bank lends to banks and is therefore regarded as the benchmark lending rate.
It also retained all other policy rates including cash reserve ratio (CRR) at 27.5 percent; asymmetric corridor at +100-700 basis points; and liquidity ratio at 30 percent.
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