The Central Bank of Nigeria (CBN) yesterday ordered all banks to open foreign exchange (forex) kiosks at major airports and approved outlets. The order was issued barely 24 hours after The Guardian exclusively reported that passengers were stranded at the international airports on account of dollar scarcity.
The move is to ease acute forex scarcity and reduce the wide gap between the official and parallel markets to enhance efficiency. It also indicates that the apex bank has stepped up the foreign exchange liberalisation plan, as it switched back to an earlier policy of selling dollar through banks.
Yesterday, the regulator said in a statement that it would now provide direct funding to banks to meet the needs of Nigerians for personal and business travel, medical needs, and school fees, with immediate effect, a few days after the National Economic Council (NEC) ordered it to review the policy.
The exchange rate for such retail transactions has also been pegged around 20 per cent of the prevailing interbank (official) market rate. A statement from CBN spokesman, Isaac Okarafor, read in part: “In continuation of efforts to increase the availability of foreign exchange in order to ease the difficulties encountered by Nigerians in obtaining funds for foreign exchange transactions, the CBN is providing direct additional funding to banks to meet the needs of Nigerians for personal and business travel, medical needs, and school fees, effective immediately.
The CBN expects such retail transactions to be settled at a rate not exceeding 20 per cent above the interbank market rate.”
Responding to the development, the Acting President, Association of Bureau De Change Operators of Nigeria, Aminu Gwadabe, said the move “to sell invisibles at 20% above interbank rates to end-users by CBN, hopefully will add confidence in the market.”
He, however, hoped that banks would be directed to sell a “certain percentage of interbank sources to BDCs at 20% margin. This, to me, will be lucrative for banks to do and at the same time put the liquidity in the market.”
He added that given its capacity to adequately meet the critical retail needs of the market, “the injection of additional liquidity to the BDCs subsector will definitely have a wider positive impacts on naira.”
A sub-Saharan Economist at Rencap, Yvonne Mhango, in a note to The Guardian, expressed optimism that the foreign exchange policy may be up for adjustment in the short term, given key developments in the economy.
“But we think the most probable outcome of a forex policy adjustment is a managed float, possibly a new peg, but a full float is unlikely. We heard this was being ‘fine-tuned’.
“Making the interbank FX market work is key for the central bank. Improved liquidity, a smaller premium between the parallel and interbank rates, price discovery, and transparency would signal success,” she said.
The banker to the government, in the statement, also said that having cleared the historic backlog of matured letters of credit at the inception of the current flexible exchange rate system, it would immediately begin to provide foreign exchange to all commercial banks to meet the needs of Nigerians.
Frontline economist, Bismarck Rewane, described it as a move in the right direction, but queried why the money was not directed to the official market.
“It is good, but a complicated ‘Manna’. Rather than the banks, it should have been in the interbank market for manufacturers and travellers so that when it is exhausted, everyone will know and its supply can help to determine the true position.
“It is either we believe in free and open market or not. There is no need for the discriminated market. But we will watch and see how developments unfold,” he said.
According to CBN, all banks would receive amounts commensurate with their demand per week, which would be sold to customers who meet usual basic documentary requirements.
However, banks will now pay directly to the institutions specified by those who are seeking to make payments of educational fees for their children and wards. CBN said it would ensure that this process is as smooth as possible and that many customers get the foreign exchange they genuinely demand.
The same rule applies to customers seeking to make payments, or purchase foreign exchange, for medical bills to be paid directly to hospitals. To increase the availability to all end-users, the CBN has decided to significantly reduce the tenor of its forward sales from the current maximum cycle of 180 days, to no more than 60 days from the date of transaction.
To sustain confidence in the new rule, CBN said it had concluded plans to begin the implementation of its articulated programme to clear all the unfilled orders in the interbank market.
While the provision of forex to the manufacturing sector would remain the CBN’s strong priority, it will no longer impose allocation/utilisation rules on commercial banks and would support the inter-bank market to ensure adequate liquidity.
In this regard, the Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, commended the apex bank for approving lingering letters of credit even as he urged the bank to address the supply side of the revised foreign exchange policy.