Currency traders under the aegis of the Association of Bureau De Change Operators of Nigeria (ABCON) have given reasons for the widening gap between the official and parallel market exchange rates.
The Bureau De Change (BDC) operators have attributed the widening exchange rate disparity to acute scarcity of dollars due to the continued suspension of forex sales to BDCs by the Central Bank of Nigeria (CBN), as well as lack of credibility of exchange rate policy.
This was disclosed by ABCON in its Quarterly Economy Review for the first quarter of the year 2022, expressing concern over the inability of the fiscal and monetary authorities to address the wide gap between the parallel market and multiple exchange rates in the country.
The review showed that the gap between the official and parallel market exchange rates (premium) widened to N171.83 per dollar at the end of first quarter (Q1’22) from N106.33 per dollar on Wednesday, July 28, barely a day before the apex bank suspended dollar sales to BDCs.
A premium refers to the outcome of market restrictions that drive the non-official supply and demand for foreign currency, a symptom of inconsistency in fiscal and monetary policies.
What the ABCON is saying
ABCON said that the fiscal and monetary policy in the country cannot stop the premium that rent-seeking forex dealers were pursuing, noting that multiple exchange rates cause distortions by manipulating relative prices in the economy and increase opportunities for this rent-seeking behaviour.
The association said, “It also showed lack of credibility of exchange rate policy, given the level of foreign reserves.
“That fiscal and monetary policy in Nigeria cannot curtail the premium that rent seeking dealers in foreign exchange were pursuing, and it is worrisome and contributes highly to the distortions in the economy.
“Multiple exchange rates cause distortions by manipulating relative prices in the economy and widen opportunities for rent-seeking behaviour for those who have access to the lower exchange rates.
“When the multiple exchange rates are corrected, it would promote a more efficient application of market-driven relative prices to allocate resources in the economy.’’
The Association also highlighted the nation’s huge public debt and increasing level of poverty and urged the Federal government to reconsider its strategy of relying on borrowing to grow the economy.
ABCON urged the FG to also reconsider its current strategies of total dependence on debt for the survival of the economy, otherwise it may run the country into coma, noting that the inability to address the problem of increasing poverty would necessarily fuel crime and insecurity.
What you should know
- Recall that the CBN in July 2021, announced the stoppage to dollar allocation to BDC operators, explaining that they have become a conduit for illegal financial flows working with corrupt people to conduct money laundering in Nigeria.
- The CBN Governor, Godwin Emefiele, noted with disappointment and great concern that BDC operators have abandoned the origin objective for their establishment, which was to serve retail end users who need $5,000 or less, and instead have become wholesale dealers, illegally in foreign exchange to the tune of millions of dollars per transaction
- ABCON in October 2021, advocated some measures to help address the continued depreciation of the naira. This includes a call on the CBN to restructure the BDC sub-sector.
- It also called on the CBN to resume dollar sales to the public through BDCs especially in view of the failure of the intervention through Deposit Money Banks to bridge the gap between the official and parallel market exchange rate.