Meeting the increasing demand for foreign exchange, and making sure that it gets to the end-users at the fixed rate has been one of the toughest tests for the Central Bank of Nigeria (CBN) in recent times. It is, therefore, disheartening that commercial banks are reportedly frustrating the CBN’s efforts to ensure that Nigerians access the scarce forex at the recommended rate for their Personal Travel Allowance (PTA), Business Travel Allowance (BTA), payment of school fees, medicals and other invisibles.
It is for this reason that bank CEOs have come under fire from the CBN. The banks are alleged to be manipulating the forex market by setting hurdles for end-users who want to buy forex for PTA, medicals and school fees. It is for these purposes that the CBN reportedly pumped over two billion dollars into the banks in the last three months, but the huge injection of forex into the retail end of the market has not really worked as it should, because of the alleged uncooperative attitude of the banks. This has resulted in intense pressure on the market and depreciation in the value of the naira.
To address this problem, the CBN has threatened to sanction bank CEOs involved in the underhand dealings in the forex market. Details of such sanctions were, however, not disclosed. Determined to wield the big stick against erring banks and their CEOs, the Director, Financial Markets Department, CBN, Mr. Alvan Ikoku, has urged forex end-users to report any case of noncompliance by the banks to the CBN. Though some of the banks have denied frustrating the forex market, any bank caught in such act deserves the severest of sanctions that the apex bank may deem necessary. The bank CEOs should appreciate the risk that such unwholesome behaviour poses to the economy.
At the same time, we urge the CBN to put its own house in order, by ensuring that its officials are not complicit in this matter. We say this against the backdrop of a recent report that two top officers of the CBN were quizzed by the Economic and Financial Crimes Commission (EFCC) in connection with insider dealing on forex. We believe that both the regulator and the Deposit Banks have a lot of explanations to make on this matter. Many forex end-users have harrowing tales to tell on their effort to access forex in the banks. As a result, many of them have to resort to the parallel market to meet their forex needs.
At a recent meeting of the National Economic Council (NEC), the CBN was directed to urgently initiate measures to bridge the gap between the official interbank rate and that of the parallel market. Subsequently, the regulator announced new forex measures. One of these was a $500m intervention for the Deposit Money Banks to help improve dollar liquidity.
Under the new guidelines, each bank was allocated $1 million weekly for sale to customers at half the premium that the parallel market charges. This covered invisibles like BTA, PTA , medical bills and payment of school fees. Before the CBN’s forex interventions, travellers out of Nigeria were finding it hard to access forex at the official market.
Also, the guidelines mandated the banks to set up windows at the shortest possible time at major airports, to ease the problems of travellers as they attempt to source forex. The banks were also asked to file their returns on the sale of forex in dollars, to avoid ambiguities. This is as a result of the widespread allegation that the CBN was selling naira at ridiculous rates.
These measures were a direct response of the CBN to intense pressure to review the forex regime and address the falling value of the naira, particularly at the parallel market. This market mirrors the challenges that businesses encounter in their attempts to source foreign currencies for their transactions. Since the release of the new forex guidelines, the question has been: will these measures reduce the rate of exchange at the parallel market and close the gap between the official inter-bank window and the parallel market?
We urge the CBN to sustain its current intervention in the forex market. It will help to strengthen the naira against the dollar and reduce the cost of imported goods and raw materials. It has also become necessary for the apex bank to reduce the Monetary Policy Rate (MPR), from the present 14 percent. The forex market, before now, was badly run. Transparency and constant vigilance are required to stabilise the market. In the last few months, scarcity of forex shot up the cost of production of goods, especially those that are dependent on imports.
This has raised concerns about a likely devaluation of the local currency if the current forex management measures become unsustainable. The CBN should, therefore, be more proactive, especially on its monetary functions. This is the time for both the monetary and fiscal authorities to come together and brainstorm on the way forward. This has become expedient because the forex problem is serious. The precarious situation had, last year, heightened calls for the devaluation of the naira.
Since the wide gap between the official and black market rates is likely to remain for as long as the parallel market appears the only market where demand and supply interact to determine the exchange rate, the CBN should find other monetary policy tools to close the gap. It should address the supply side of the market. One way to do this is by allowing oil firms and banks to sell dollars to Bureau De Change (BDC) operators. This will help ease pressure on the market and check the fall of the naira.
