Site icon Nairametrics

See what happened to exchange rate the last time the CBN banned BDC

Naira falls across forex markets as businesses resume after public holidays

The Central Bank Governor, Godwin Emefiele surprised journalists at the monetary policy committee briefing on Tuesday when he announced a ban of Bureau De Change Operators in the country. Since the ban was announced, we have received several inquiries from our readers who as expected, what to know what the implication of this could be on the exchange rate.

Apparently, this is not the first time the central bank is banning Bureau De Change operators in Nigeria. In January 2016, the Godwin Emefiele led central bank also banned the BDCs for similar acts, providing us with a useful guide to what might happen (see link).

Here is what happened as this Nairametrics article serves as a reminder.

What if the same was to reoccur?

Why did exchange rate fall so badly in 2016?

Fortunately, in 2017 the central bank introduced a costly policy of selling OMO bills to foreign and local institutional investors at very high interest rates, thus attracting dollars from overseas. These foreign portfolio investmentsĀ helped crash the exchange rate positively from N505/$1 to about N363/$1. But we had gone from N165/$1 in 2014 to N363/$1 which is 54.5% devaluation.

Bottom Line

Banning the BDCs for nefarious activities might be a move in the right direction however, if history is to serve as a guide, the CBN will need to ensure there is availability of forex at all markets especially the I&E window.

The reason for the challenge we have in the country still remains the lack of dollar supply in the economy. Foreign investors no longer import dollars into the country and oil revenue is still as bad as it was towards the end of last year.

News continues after this ad

News continues after this ad

This is probably the best time for the central bank to float the naira or adopt a more market driven approach that allows traders determine the exchange rate at which they want to buy and sell dollars. The CBN can continue to play its interventionist role by stepping in with supply when the price moves away from its guidance. Anything short of this could well lead Nigerian into a repeat of 2016.

Exit mobile version