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Home Markets Currencies

How CBN’s Forex ban to BDC’s will affect the prices of goods and services

Ubah Jeremiah Ifeanyi by Ubah Jeremiah Ifeanyi
July 29, 2021
in Currencies, Financial Services, Spotlight
Exchange rate falls at the NAFEX window on a depressed forex market
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Prices of imported goods in Nigeria may experience further hikes in the coming weeks following the central banks’ recent ban of forex allocation to Bureau de Change operators in the country.

Within 24 hours of the announcement of the ban which happened on Tuesday, July 27, the naira depreciated at the parallel market where the BDCs operate to N525/$ from N505/$ which it was exchanging at before the unexpected ban.

Although the CBN assured that it is well-prepared to meet the forex needs of Nigerians through the banks, many analysts are sceptical about the actualisation of this claim and for good reasons too.

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In the first instance, Nigeria is a heavily import-dependent economy and it is common knowledge that most of the forex used to finance these import operations are sourced from the parallel market. A naira slump at the parallel market would thus, translate to higher prices of goods and services purchased from abroad. As one of the analysts who spoke to Nairametrics stated in an earlier interview concerning the 44 items on CBN’s forex ban list, “Where will importers get their dollars from?”

While some analysts believe that the move by the CBN is necessary to curtail what has become a currency racket in BDC operations, many are not so sure that it is the silver bullet to the nation’s currency crisis which has its root cause in the nation’s weakened foreign reserve position brought about by dwindling oil revenues and insufficient foreign exchange inflows from investments and remittances amongst others.

For the average Nigerian consumer seeking forex for overseas transactions, education concerns, travel, medical treatment, and import trade, the ban certainly creates a “shock” despite the CBN’s promise that the banks would step in as a stopgap. Time would tell how well they keep up with servicing the demand for forex at the official I&E rate.

For their part, Nigerians are already apprehensive about what the BDC forex allocation ban could portend. A source in computer village confirmed this to Nairametrics saying, “Once dollar goes up in the black market, we have to increase the prices of our products especially UK used phones and computers.”

In Ogun state, a vendor of consumer goods said she would likely increase her prices because of the uncertainty in the market.

She said, “I think I would have to increase some of the prices in my store by tomorrow because I don’t know how high prices would reach when I want to restock, but I am sure it would increase.”

Although the move by the CBN is in good faith, the everyday Nigerian would perceive this as a step to increasing hardship especially if the CBN fails to achieve its objectives of stabilising the naira and promoting a healthier financial system.

Bottomline

The actions of the CBN may be commendable, but the ripple effects on the economy are worrisome. Although inflation in the short run is inevitable, the actions of the CBN in providing the banks with sufficient FX supply to match the demand is vital in ensuring the achievement of the apex bank’s policy objective.

Further, more innovative ideas must be implemented to stop the repeat of history as seen in 2016 where the naira lost nearly half of its value at the end of the year after a similar ban was instituted mid-year.

 


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Tags: BDC forex banFeatured
Ubah Jeremiah Ifeanyi

Ubah Jeremiah Ifeanyi

For further inquiries about this article, contact: Email: Ifeanyi.ubah@nairametrics.com Twitter: @ubahjc Linkedln: Jeremiah Ubah

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