Operators of the Bureau De Change in Nigeria have issued a warning about the stability of the Naira as 2019 election activities begin.
The Acting President of The Association of Bureau De Change Operators, Alhaji Gwadabe Aminu, was worried that the elections might have a negative effect on the exchange rate bringing us back to the dark days of foreign exchange volatility.
According to him, the election campaigns could trigger an exit of portfolio investors from the Nigerian Stock Exchange just like it did during the oil price crash, sending Nigeria back again into the dark days of volatility.
They also requested that the CBN includes them in the Investors Exporters window, instead of maintaining them in a different window.
“ABCON is concerned about the multiplicity of foreign exchange windows operated by the CBN and the resultant multiple exchange rate regime in the economy. Africa’s biggest economy has at least six exchange rates ranging from one for Muslim pilgrims going to Saudi Arabia, a retail rate set by licensed BDCs, a rate for foreign travel and school fees, and the official and black market rates.
“The issue of multiple rates is a thing we have been discussing with the CBN. It is not helping a lot of companies to plan. So, we are imploring the CBN who is the custodian of exchange rate management to work towards a single exchange rate that would favour the economy.
They also used the opportunity to announce the anticipated launch of their new website naijabddc.com. The website is will provide up-to-date foreign exchange rates to their customers and public in general.
Why it matters?
Bureau De Change operators played a major role during the forex crisis of between 2015 and 2017. Their unique role of being the supplier of forex demand for the retail end of the market gives them a first-hand insight of the state of the drivers of forex stability in the economy.
Supply and demand pressures at their end of the supply chain could determine whether it is time to start exiting the stock market and hedging with dollar purchases. We take their word seriously and will be watching this closely.
Getting on I&E Window
Integrating the BDC’s into the I&E window is, in a nutshell, floating the exchange for good since the BDC’s serves a retail market that includes small businesses that are not into foreign portfolio or direct investing or imports as required by the CBN. Currently, the exchange rate at the BDC segment is fixed at N364/$1 with the CBN basically being the sole supplier.
This segment also serves travellers on business and personal trips. Adding this window to the I&E list means Nigerians and small business will be exposed to the forces of demand and supply when it comes to forex purchases and will not be directly subsidised by the CBN. By being subjected to the forces of demand and supply, the exchange rate might rise in the short-term and perhaps stabilise in the long-term as the market matures. It could also mean new regulations being issued by the CBN that guide how this market operates.
Chances of this happening? Very slim, so far as Godwin Emefiele is still at the helm at the CBN and Buhari is still president. They are also not under pressure considering that the external reserve is rising and exchange rate stability has been achieved for over a year. Add to the fact that oil prices have been on the rise.
Searches for exchange rate rose dramatically during the exchange rate crisis as Nigerians sought for arbitrage opportunities. The gave birth to a number of parallel market exchange rate websites which relied on rates provided by black market operators. Nairametrics also publishes a daily exchange rate tracker.