Apparently worried about the freefall of the naira and the continuing drop in the nation’s foreign exchange earnings, the Central Bank of Nigeria (CBN) recently introduced new measures to shore up the value of the local currency and improve the management of the country’s depleting foreign exchange earnings. THE CBN governor, Mr. Godwin Emefiele, disclosed in Abuja that the apex bank will significantly reduce the amount of foreign currencies it sells to the 2,786 licensed Bureaux De Change (BDCs) operators nationwide. He also said that the restriction on forex deposits into domiciliary accounts had been lifted.
The commercial banks are now free to accept foreign currency deposits into domiciliary accounts of their customers, while the amount of forex to be sold to the BDCs has been cut drastically.
The measures, according to the CBN, will help to boost the country’s forex reserves, improve the naira exchange rate and end the arbitrage on the currency by the BDCs. The restriction of forex sales to BDCs is also expected to lead to a better application of the scarce currencies to areas of critical need, at least in the interim, while lasting solutions are found to the nation’s gross fiscal challenges.
While we acknowledge the CBN’s statutory responsibility to manage the economy, especially monetary policy, we admonish that it should closely monitor the implementation of the new measures to ensure that they do not have unintended negative impact on the economy.
For example, immediately after the announcement, the dollar gained against the naira. Naira fell from N275 to N300 to the dollar in the parallel market in 48 hours, while the official market recorded a slight adjustment from N197 to N199 to the dollar. There are fears that things will get worse for the naira. The relaxation of the restriction on cash deposits into domiciliary accounts, on the other hand, is a policy somersault coming just a few months after the initial restriction. We hope the CBN is not in panic mode that can spell disaster for the economy and the nation.
Some critics of the CBN’s new measures are pondering the fate of the over 2,786 BDC operators licensed to do business in the country. Emefiele provided an answer to this question when he said that BDCs which are not comfortable with the new measure can apply to have their licences withdrawn and their N35million deposit refunded.
Providing further justification for the new policy which will see an immediate cut in the weekly allocation of US$60,000 to each BDC to US$10,000, Emefiele pointed to “emerging evidences that the BDCs have abandoned their primary mandate of meeting the forex demands of retail users”, and turned themselves into “a channel of illicit cash flows”.
By the new measure, only US$1.48 billion will now be made available to the BDC window from a previous outlay of US$8.6 billion yearly, resulting in a conservation of over seven billion dollars which the CBN hopes to better utilise through the autonomous channels.
It is really not surprising that the CBN came up with these measures to deal with the challenges in the economy. From a base of $37.3 billion in June 2014, the nation’s foreign reserves have depleted to $28 billion. The price of crude oil has dropped remarkably from a high of $114 per barrel in July 2014 to the present low of $26 per barrel. Projections are that the price could get as low as $20 per barrel in no distant future. The crash of oil prices has seen the nation’s monthly earnings from the commodity fall from $3.2 billion to a mere $1 billion.
Apart from the well known problem of falling oil prices in the international market and our over-dependence on the commodity for foreign exchange, the CBN has also identified round-tripping and speculative attacks on the naira, as responsible for the present difficulties, hence the need for the new measures.
At best, however, the CBN initiatives can only work in the interim. In the long run, efforts must be concentrated by all genuine stakeholders in the national economy on expanding the base of our foreign exchange earnings. In this regard, agriculture and rapid industrialization still offer us the best chances to escape from over-dependence on crude oil exports for our forex needs. The expansion of these two sectors will help us to escape from our present misery and become a fast developing and well-structured economy.
If our agriculture is properly harnessed and developed, complete with value-added products and the establishment of concomitant small and medium enterprises, most of the present anxieties over depleting foreign reserves and falling naira value will disappear.
We also need to properly develop our solid minerals sector, which has the potential to grow our economy by $400 million annually.
The CBN, working with the Finance Minister, must find workable solutions to the increasing dollarization of the economy and the policies which allow financial operators to profit from currency speculations and round-tripping. While we agree that these are some of the problems the new measures aim to address, there is still a lot more to be done, as the commercial banks are also not totally free of these problems.
These times call for deep introspection as well as bold, sincere and visionary initiatives to arrest the freefall of the naira and the depletion of our scarce foreign exchange.
