Nairametrics| Apart from currency speculators and other ‘currency criminals’, the recent strengthening of the Naira has been good news to Nigerians, as the forex scarcity that saw parallel market rates spiral out of control has been eliminated. That of course is according to those in support of the recent CBN policy of pumping FX into the retail end of the market. As of yesterday, certain sources claimed that the parallel exchange rate was as low as N390/$1.
Another group however, are seeing the strengthening of the Naira in the black market as a threat. They are the Bureau de Change (BDCs) operators.
The chairman of the Association of Bureau de Change Operators of Nigeria (ABCON), made this known yesterday, The Nation reports, as he claimed the multiplicity of rates as well as the strengthening of the Naira in the parallel market may push BDCs out of operation sooner rather than later.
“The CBN sells dollars to BDCs at N381 and are expected to sell at N399, while the CBN sells dollar to Travelex, also a BDC and banks at N315 and are expected to sell at N375. While Travelex and banks are expected by a CBN circular to settle such transactions at a rate not exceeding 20 per cent above the interbank market rate, BDCs only sell at five per cent margin.” Gwadabe complained.
From his explanation, it is not difficult to see why the BDCs are under threat. Commercial banks and Travelex sell the dollar at between N315 and N375 while BDCs, at a 5% profit margin are expected to sell at N399. Now, with the exchange at the parallel market lower than N399 (the highest rate BDCs are expected to sell), there remains no need for any customer needing forex to patronize BDCs. Either get it officially from the banks/Travelex or buy from the parallel market, which as at present, is cheaper than the rate from the BDCs.
Given that the BDCs have only a 5% profit margin, there is not much they can do to reduce their prices. In fact, yesterday, Reuters claimed that the Naira firmed to as much as N385/$1 on the black market, which is similar to the N381/$1 at which the CBN sells to Bureau de Change. By the end of business today, if the trend continues, the parallel exchange rate is likely to drop below the rate at which the CBN sells to BDCs.
According to Gwadabe, BDCs will be technically hedged out of the market and about 3, 200 CBN registered BDCs in the forex market would quit, leading to over 30, 000 job losses in an economy that was gradually recovering from recession. Gwadabe appealed to the CBN to urgently see that the rates were harmonized to the BDCs and strangulate the parallel market.
It is evident that the CBN needs to adjust the rates, unless of course, it was always their plan to wipe out BDCs from the forex market. If that was their plan, the CBN risks pushing more forex traders into the parallel market. Many of the BDCs, who do want to close shop, will be compelled to buy dollars from the parallel market and sell. This increased demand, in turn, may lead to higher rates in the parallel market, and a wider gap between the official rate and the parallel market rate.
Chacha Wabara is a legal practitioner, blogger and fitness coach. She has over 5 years experience is blogging and freelance writing. She has written several articles and research work over the years as a freelance contributor. She joins the Nairametrics team as our Lead News Editor and Content curator.