News Column

BDCS, CBN and the New Guidelines

July 4, 2014

Not a few are of the view that a strong impediment to the effort of the regulatory bank to achieve exchange rate stability is in the operation of the BDCs.

The Central Bank of Nigeria, CBN, last week revisited the operations of the Bureau De Change, (BDC), when it published a new guideline which is targeted at reducing the number of BDCs in the country. According to the new guideline, the CBN increased the minimum capital requirement of BDCs from N10 million to N 250 million, which represents an increase of 250 percent. The Apex Bank also reviewed upward a "mandatory cautionary deposit" to be deposited in a non-yielding account in the CBN toN35 million. Other measures introduced by the CBN, according to the guideline are an application fee of N 1 million for BDC license and an annual renewal fee of N 250,000. The regulatory Bank equally warned that henceforth it would also punish any operator of BDC discovered to have multiple number of BDCs.

Meanwhile the House of Representatives has reacted to this new guideline by asking CBN to suspend its implementation. The members also ordered the governor of CBN, Mr. Godwin Emefiele to appear before the House of Representatives for explanation on the new policy.

This newspaper certainly notes the concern of the Apex Bank, especially as most stakeholders hinge the performance of the current administration on its ability to manage effectively the stability of the exchange rate of the Naira. Indeed, at a time when the foreign reserve has reduced considerably as a result of the dynamics of the oil sector, monetary analysts believe "any radical attempt" by the Apex bank to maintain the stability of the exchange rate would be a welcome development.That is why we are in agreement with the new policy guideline on BDCs.

In fact, not a few are of the view that a strong impediment to the effort of the regulatory bank to achieve exchange rate stability is in the operation of the BDCs. Presently, records show that there are 5,208 registered BDCs in the country while 1,417 applications for license are awaiting the approval of the Apex bank. CBN still funds their operation and reports indicate that the Apex Bank allocates N 50 billion to BDCs weekly. Infact, available statistics indicate that the funding of BDC reduces the reserve at "an average of $6 billion yearly since they came on stream. Definitely, the country cannot continue to sustain this level of drainage in the foreign reserve especially on the face of the volatility of the exchange rate. Incidentally, Nigeria is the only country in the world, which is still funding the BDCs. Kenya the other country which funded her BDCs has since stopped the policy.

Even then the availability of many online payment options now has reduced considerably the operations of the BDC. Equally worthy of note is that presently there are many credit or debit cards available and Nigerians could take advantage of any of these to meet their need for foreign currency.

Besides, there are indications that the activities of BDCs have encouraged money laundering and subsequentdollarization of the Naira.

But beyond these we also think that the CBN should not lay the blame of the exchange rate instability on the activities of the BDCs alone. We agree with Henry Boyo that a weaker Naira is.

"equally induced by the excess naira supply" the apex bank deliberately instigates in the money market through its monetary policy. This has created adverse economic consequences, which include inflation and high cost of funds in the money market. Perhaps, besides sanitizing the operations of the BDCs, the Apex Bank should also consider reviewing its monetary policy: In particular, its monthly allocations from the federation account to the three tiers of government, which is one of the sources of excess liquidity, should be dollarized by the CBN.

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Source: AllAfrica

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