The Central Bank has said that it is working with the commercial banks to clear the $10 billion foreign exchange backlog within the next 2 weeks.
According to reports, this was made known by the acting Governor of the CBN, Folashodun Shonubi, who broke the news at a forum on Tuesday in Lagos, when he was confronted with questions on the lingering challenges in the foreign exchange market.
Shonubi said the backlogs would be cleared through different structures within the forex market, adding that banks, which control 75% of the forex transactions, will play a significant role in seeing that the backlog is cleared.
$10 billion unmet FX demand
The FX backlogs, which is the unmet demand for forex by investors and exporters, are estimated at $10 billion and have resulted in heavy losses to many firms.
These forex backlogs include dollar requests from manufacturers and importers purchasing raw material inputs from abroad, parents paying their children’s tuition fees abroad, Nigerians paying medical bills abroad, travellers sourcing Business Travel Allowances (BTAs) and Personal Travel Allowances (PTA), among others.
These requests were stalled for years due to dollar scarcity, a drop in foreign direct investments (FDIs) and foreign portfolio investments (FPIs) inflows, drop in foreign reserves positions amongst other offshore investment opportunities.
What the acting CBN Governor is saying
Shonubi said the local banks have been working with the apex bank on various structures to clear it.
He said,
- “As a matter of fact, there is a large amount of the obligations that the banks in Nigeria have already taken on. So, what happened was that at maturity, they made the foreign exchange available for those who needed to use them like importers and what have you.
- “There are some customers who still have their obligations and part of the restructuring with the banks in Nigeria, is also to clear that backlog. That is something we have been discussing for a while. I expect that we will do that, within the next one or two weeks.
- “What that means, therefore, is that this obligation that people keep on talking about will not be left. Today, we still intervene in the market, so it is not as if it has affected our ability to make monies available to banks in the Investors and Exporters foreign exchange market,”
CBN contributes less than 25% of the FX market
He explained that considering the volume of forex interventions, the role and the depth of the CBN intervention is overemphasized.
Shonubi said,
- “When we look at the volumes, the Central Bank of Nigeria today contributes less than 25% into the forex market. And the aim if you remember about a year and a half ago, was that the Central Bank did not want to be a regular player, but more of intervening to stabilize the rates and that is where we are going.’’
He added that a lot of forex transactions go on through the commercial banks without the CBN’s input.
He said,
- “There is so much more foreign exchange that people don’t talk about, that is being made available through the banking system and banks are selling to their customers. It doesn’t come to the Central Bank, it doesn’t appear as part of the demand that comes to us. And it is significant. It is almost three times what we as a Central Bank make available.’’
Accuses BDCs of round-tripping.
Shonubi also spoke on the need to modernize Bureau de Change (BDC) operations, challenging operators to be technology-compliant or lose their licenses.
The CBN boss stated that plans are on to close down Bureau De Change, BDC which does not operate electronically.
He said the current BDC market is largely cash-driven, and the apex bank plans to modernize its operations to reduce cash interactions.
Accusing BDCs of round-tripping, Shonubi said the BDCs were created to sell small-value forex transactions, but the operators abandoned that role.
He said,
- “The BDC instead of playing its primary role; the foreign currency they get they take them to the black market. We would soon close down any BDC that does not operate electronically. Forex market is supposed to be seamless and transparently carried out.
- “Even when they get the dollars that are available, they would rather keep it and sell in the black market.’’
It is advisable and time to proscribed black market/ parallel market and make it a criminal offence.
CBN should increase their capital base of BDC if there is any before and make their numbers sizeable.
So that Greedy investors can take over. Regulate them with appropriate controls. Increasing capital base wouldnt work discouraging round tripping will. There was a time fx was stable so what happened. Other Financial institutions are guilty of this too as well so dont cut your nose. Because these greedy people also have other financial institutions in which they hold shares directly or indirectly. In fact CBN should put a law putting appropriate controls
BDC have enjoyed round tripping for many years and have become a parasite and rent seeker on Nigeria economy, unless hard decision is taken to sanitize them, there will be no changes in our forex buhaha.
Our Naira may take longer to stabilize unless we do everything to remove whatever is making our currency to be constantly under pressure, one among many is to eliminating buying and selling in Dollar currency within Nigeria, some house rents and other transactions payment are being specified in foreign currency, this should be totally discouraged. We should use Naira as only means of exchange for goods and services.
Oga dont blame any bdc as long as you enjoy travelling overseas rather than going to the village Dollar will go up. As long as you dont patronise made in Naira. It is only when we encourage localization and production encouraged then u become of value then Naira becomes stronger
For two years now you have stopped selling dollars to BDCs where does the issue of round tripping come from, yet Naira has continued its free fall. CBN continue deceiving your gullible Nigerian populace. You accused AbokiFx of fixing price and banned it, yet it continued its free fall until you decided to unban AbokiFx again. When will illiterate Nigerians learn anything? That seems like sometime in the future. BDCs have no role in what is happening to your Naira now rather they have been a stabilizing force in sustaining the pressure in the Naira. Emefiele wanted to reward his Nigerian friends in the bank due to his hatred for the BDCs so he took the dollar selling business to them and then they put him and the CBN to shame. This is the same people Shonubi wants to remain in bed with. An FX banker neighbor of mine procured a costly Range sports within few months of CBN dollar selling business with the banks and yet we deceive gullible Nigerians that BDCs are the culprits. The fact is that Nigerians don’t even know what is good for them. Let’s keep wallowing in darkness until we are tired.