CBN slashes dollar supply to BDCs by 46%

The Naira has come under fresh pressure in the parallel market having depreciated to N473 per dollar following the decision of the Central Bank of Nigeria (CBN) to slash dollar sales to Bureaux De Change (BDCs) by 46 per cent. Financial Vanguard investigations revealed that last week, the CBN sold $8,000 to each BDC through Travelex Nigeria Limited. This represents 46 per cent decline when compared to $15,000 usually sold per week to each BDC.

Confirming this development to Financial Vanguard, Chief Executive Officer of H.J Trust BDC, Mr. Harrison Owoh said the reduction came as a surprise to the market. He said this was contrary to the general expectation that the dollar sale will be increased to $20,000 per BDC. “That is why the currency is under pressure with the rate going up.”

Why CBN reduced dollar sales

Also confirming the development to Financial Vanguard, Chairman, South West Zone, Association of Bureaux De Change Operators of Nigeria (ABCON), Mr. Taiwo Ebenezer said that the reduction in dollar sales was done to accommodate BDCs in other zones of the country. He said: “The dollar sales have been limited to BDCs in Lagos and Abuja, but ABCON recommended to CBN to find a way to accommodate BDCs in other zones.

That is what the CBN has done though the reduction in supply in Lagos and Abuja has prompted the exchange rate to go up.” He added that the CBN will definitely consider the impact on the rates and take a decision on whether to keep it at $8,000 per BDC across board or increase the quantity sold per BDC.

DSS intensifies raids

Financial Vanguard investigations also revealed that the operatives of the Department of State Securities (DSS) have intensified raids on illegal currency traffickers in Lagos and Abuja, thus driving the parallel market further underground. Speaking to Vanguard on condition of anonymity, a top BDC operator told Financial Vanguard:

“They now come regularly to locations where these people usually operator from. About five of them (DSS operatives) recently visited this area but they didn’t come into the offices of licensed BDCs. They are targeting the unlicensed and illegal operators. But everybody is careful now. You only deal with people you know except where they have their documentation.

The only problem is that it is difficult to get the exchange rate that reflects the true position of the market. People quote different rates depending on the person they are dealing with and the source of the dollar. That is how we now operate”. Financial Vanguard investigation reveals that due to the intensity of the DSS raids, some licensed BDCs have issued letters warning their staff against any form of interaction with street currency hawkers or involvement in such transactions.

“We don’t deal in parallel market transaction; we don’t even know what the parallel market rate is. We have issued letter to our staff against such transactions, that it is against company policy to be involved with or even discuss parallel market transactions”, a top official of an Abuja based BDC told Vanguard.

CBN justifies raids

Recently, the CBN Governor justified the DSS raids on illegal currency traffickers saying the nation’s foreign exchange laws forbids street trading of foreign currency. Addressing the press at the end of the meeting of the Monetary Policy Committee (MPC), Emefiele said that the DSS had the right to enforce the law and make sure that currency hawkers were forced out of the “illegal trade.”

The Governor, who said it was demeaning for traders to hawk currency on the streets, urged the traders to legalise their business by applying for Bureau De Change (BDC) license. In the communiqué issued at the end of its meeting the MPC called on security agencies to sustain the raids, saying: “The MPC believes that the security agencies should sustain their checks on the activities of illegal foreign exchange operators in order to bring sanity to that segment of the market.

“The Committee reiterated that the extant foreign exchange regulation outlaws the trafficking of currency on the streets as some unlicensed operators currently do. Thus, to evolve an appropriate Naira exchange rate that stabilises the foreign exchange market, BDC operators must strictly observe the terms and conditions of their licence.”