Bureau De Change (BDC) operators have insisted that there is an extremely large amount of foreign exchange liquidity in the system that is unaccounted for.
They, however, called for a cohesive strategy between the Central Bank of Nigeria (CBN) and the BDC operators to tap into this opportunity.
The licensed currency traders said that apart from collaborating with the apex bank, they are always ready to share skills and techniques to make the retail end of the forex market better.
The BDC operators had always advocated for increased participation and involvement in the foreign exchange market to ensure the success of the various policies being implemented by the CBN and help provide more liquidity.
This push by the BDCs followed the June 2023 unification of all segments of Nigeria’s foreign exchange market, consolidating all windows into one. This action by the apex bank was part of a series of immediate changes aimed at improving liquidity and stability in the Nigerian Foreign Exchange (FX) Market.
The currency traders had advised the CBN to always leverage the BDCs and allow them access to banks’ autonomous window and agencies of international money transfer operators.
Top BDC operators had accused some of the International Money Transfer Organizations (IMTOs) of diverting diaspora remittances outside the system, with even the commercial banks complaining of not seeing these remittances.
Despite the foreign exchange policies introduced by the CBN to help improve liquidity, transparency, and efficiency in the forex market, the supply from the various channels is still a challenge.
This is further compounded by the uncertainty surrounding the inability of most of the BDC operators to meet the CBN recapitalization deadline, with the naira hovering around the N1,600/$1 mark.
91% of forex liquidity is outside the system
The President of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadebe, in a chat with Nairametrics, hinted that over 91% of the forex liquidity is outside the system, just like the banking sector has the same volume of cash outside its system.
Gwadebe said, ‘’There is huge unaccounted liquidity in the system to be tapped with a cohesive strategy between the CBN and ABCON. We understand and appreciate the paucity of liquidity, but I am hopeful that collaborating to harness the hanging fruits available is worth a while.
‘’As always, we are ready and prepared to share skills, techniques, and professionalism for a better sub-sector. We are not only looking at a CBN-calibrated intervention, but other sources already provided in the guidelines.
‘’Is just like there is over 91% cash outside the banking subsector, and the same figure for the FX LIQUIDITY to be captured.
‘’India, UAE, China, Lebanon, Pakistan rely heavily on Diaspora remittances. India is raising over $30 billion annually through Diaspora remittances for infrastructure.’’
As part of the ways to address the forex liquidity challenge, Gwadebe advised the Federal Government to sell its toxic assets, like the Federal Secretariat in Lagos, Bonny camp, and other major unutilized ones.
He said, ‘’ We also need to sell our toxic assets, both in Lagos and Abuja, to generate foreign inflows.
Lagos federal secretariat, Bony camp are other unutilized assets that are good examples.’’
When reminded that these physical assets can only give you revenue in naira, as doing otherwise will mean going against the government policy of not collecting dollars or local transactions, the ABCON boss argued that we also collect dollars for some bonds.
He said that there is a lot of dollar payment to government agencies like immigration and others.
Forex supply not flowing
Making his contribution to the issue, an Abuja-based BDC operator, Adamu Ardo, complained that forex supply from official channels is not flowing like it should, affecting the ability of the forex traders to meet customer demands.
He, however, noted that there has been some small forex supply lately, with the CBN releasing a bit more dollars and the exchange rate stabilizing.
Ardo said, ‘’The issue of forex liquidity is still a tough one. We are managing, but it’s not easy at all. Supply from official channels is not flowing the way it’s supposed to flow, and that one is affecting our ability to meet customer demand and small business transactions.
‘’In fact, sometimes we do get like 10 customers asking for dollars, but we can only satisfy 3 or 4. The rest we will have to wait for or go to the black market, which is not good for the system. The demand is high, but the supply is still dragging.
‘’We have seen small lately, sometimes the CBN releases a bit more, and the exchange rate is calm a little compared to how it was before. But the gap is still wide, and until we get a consistent and predictable supply, there will still be problems.
‘’To cope, we work with some private sources and also manage customer expectations. We tell them that the rate can change at any time and the supply can be delayed.’’
What you should know
BDC operators had called for a more inclusive approach in the foreign exchange market, seeking legislative support to enhance liquidity, competitiveness, and sustainability in the market.
- Earlier in March this year, Gwadebe had referred to the naira as fast becoming the most unpredictable currency in the world.
- The ABCON boss highlighted some of the challenges affecting the forex market, including global economic uncertainty, regulatory changes, technology advancements, and market volatility.
- Gwadebe noted that economic slowdowns in major economies like the US, Europe, and China have resulted in decreased trade volumes and increased market volatility.
He also stated that the recapitalization policy for the BDCs has given rise to compliance costs for forex brokers and impacted market liquidity.
