Punch Newspaper featured an article on Tuesday highlighting the effects of the ban of the use of debit cards on the state of Nigeria’s foreign currency market. They interviewed some analysts to get their opinion on this might mean for the economy, forex market and of course the exchange rate. here is what they said.
Prof. Akpan Ekpo (Director General, West African Institute for Financial and Economic Management)
The suspension is unfortunate. However, we have to understand that there is a shortage in the supply of foreign currencies. The banks have to make do with the foreign currencies available to them and channel them into the productive sector. Preference has to be given to manufacturers and industrialists.
I hope it is a temporary measure adopted by banks. But it does not apply to those who have dollars in their domiciliary accounts. They can withdraw dollars abroad from ATMs.
David Adorin (Chief Executive Officer, High Cap Securities)
There is a scarcity of foreign exchange in the economy and the little that is available would have to be rationed to meet cogent and important transactions. So, ATM transactions are non-material transactions. I think the suspension is a right step in the right direction so that they can satisfy the yearnings of their customers who are into productive activities.
The foreign exchange market is not properly organised now. So, the country’s monetary authorities have to properly address this. Secondly, the importation of items needs to be discouraged so that we can conserve foreign exchange and encourage export.
Bismarck Rewane (Chief Executive Officer, Financial Derivatives Company Limited)
The banks are only responding to the shortage in the foreign currencies. They are taking steps to ensure that they don’t get unbalanced. As soon as supply improves, they will reverse the suspension.
When there is a shortage (in forex), everybody adjusts. I don’t really see it as an issue; the banks cannot give what they don’t have.
Kunle Ezun, Currency Analyst, Ecobank Nigeria Plc
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The suspension of ATM card usage abroad boils down to dollar liquidity. It is not new; it has happened in the past. The idea is this; if you use your card abroad and spend dollars, the bank in Nigeria would have to replenish what you have spent. Although the suspension is not ideal for the banking industry, the circumstances surrounding the operation of those services abroad is quite challenging.
If customers use their cards abroad and their banks here in Nigeria cannot repay the corresponding banks, it paints them (Nigerian banks) in bad light. The cost of buying dollars is quite challenging now. As much as banks would want to serve their customers, they have to be very conscious so that they don’t run at a loss.
It is a stop-gap measure because the challenge is beyond them. The only solution is for us to see more dollar inflow into the system. And if the price of oil increases, it would help us to increase our foreign reserve. These are the things that would help in addressing the dollar liquidity.
Another option, especially for those who might want to do business abroad, is to buy PTA (Personal Travelling Allowance) which is $4,000 per quarter.
Victor Okhai (A public affairs analyst)
The suspension of the use of Automated Teller Machine card for foreign transactions is not in the interest of the country and Nigerians. While it may help the banks to achieve some short-term goals, it would put more pressure on the parallel market.
The policy would further widen the official and the black market differential. With the end of the year approaching, the demand for dollar at the black market would rise astronomically. And with the market already finding it difficult to meet the demand, Nigerians should prepare for the worst case scenario in coming months. This is because those who are travelling have no option but to go to the black market. The challenges that would follow if the policy is not reversed would affect every aspect of our national life. The Central Bank of Nigeria needs to stop the policy with immediate effect.
Johnson Chukwu (Managing Director/CEO, Cowry Asset Management Limited)
This is not the first time this would happen. We went through this process before. I think it has to do with the current level of our foreign reserve, which has come down to about $24bn. The key challenge is that the policy would constrain a lot of Nigerians from doing legitimate business through the banking system. That would force them to adopt cash transaction option.
Unfortunately, that would compel people to patronise the parallel market. Without the use of debit cards, Nigerians would be cut off from the international financial payment system. What that means is that Nigerians cannot make hotel reservations outside the country using their debit cards.
Meanwhile, owing to the anti-money laundering campaign across the world, many organisations do not accept cash as a means of payment. This would pose a major challenge to Nigerians who would not be able to do legitimate business outside the country. Nigerians may not be able to pay for ordinary magazine subscription and other basic transactions. And when they resort to cash transactions, they would be seen as fraudsters.