Thisday Editorial
The banks must be closely monitored to ensure they abide by the rules
The value of Naira has continued to dwindle against the dollar and other world currencies, particularly since the beginning of the year. For a country that boasts the largest economy in Africa, it beggars belief that it has one of the weakest currencies on the continent. Currently, the naira exchanges for over N500 to one United States dollar at the parallel market. There are fears that it might depreciate further, and put manufacturers and others who need forex for business transactions in a more difficult situation. Consequently, prices of goods and services are hitting the rooftops.
A weak naira potentially worsens the inflationary pressure given the import-dependent nature of the economy. This is also capable of adversely affecting output and rolling back efforts at economic recovery. Today, virtually every sector of the economy is blaming the exchange rate for skyrocketing prices. The aviation sector is a prime example. Not too long ago, the federal government announced waiver of Value Added Tax (VAT) on airline tickets as a means of reducing air fares. But the operators have continued to insist that the major cause of exorbitant fares is the exchange rate.
The impact of the high exchange rate has been most felt in the oil and gas sector, with prices of imported petroleum products and that of essential raw materials needed for production by firms going up. Meanwhile, the worsening exchange rate has exacerbated the fuel subsidy challenge facing the country. Many have argued that the solution to the depreciating exchange rate is not to float the naira as has been canvassed in some quarters, including the International Monetary Fund (IMF). Analysts believe doing so will have the effect of further weakening the naira, especially in the short term.
It is against the foregoing background that the CBN recently discontinued foreign exchange (FX) sale to Bureaux De Change (BDC) operators in the country. The BDCs, according to the apex bank, had defeated their purpose of existence to provide forex to retail users, but had instead become wholesale and illegal dealers. “They have turned themselves away from their objectives. They are now agents that facilitate graft and corruption in the country. We cannot continue with the bad practices that are happening at the BDC market,” said CBN Governor, Godwin Emefiele. “Several international organisations, embassies patronise BDC through illegal forex dealers to fund their institutions. We will deal ruthlessly with Nigerian banks that deal with illegal BDCs and we will report foreign organisations patronising them.”
Faced with rapid depletion of our external reserves and a possible balance of payments problem, the capacity of the CBN to defend the value of the naira is being increasingly constrained. So, the justifications by the CBN are very difficult to fault in the circumstance in which we have found ourselves today. By severing FX supplies to the BDC, the CBN has fully shifted their role to the commercial banks that are now mandated to provide forex for the legitimate use of Nigerian end users. However, we hasten to add that the CBN should go beyond this threat and activate effective mechanisms to monitor and rein in deviant banks that might resort to their old ways of doing business. We are very much familiar with the predilection to round-tripping among some banks. To make the stoppage of forex supplies to BDCs count, the CBN must up its ante in monitoring, and bare its fangs when there are breaches.
As we enter the summer when the demand for FX is usually on the increase, Nigerians with genuine demand for forex must not be denied or subjected to harrowing experiences by the banks. There must be enough supplies to the banks to meet demands.