Roles of bureau de change in foreign exchange stability
All over the world there are BDC operators and they play different roles. For instance, the primary role of BDCs globally, according to the Association of Bureau De Change Operators of Nigeria (ABCON), is to ensure forex availability to the critical retail sector of the forex market in terms of supply, to bridge the gap between the official and the parallel market exchange rate.
The operators said they have even gone beyond ensuring rate convergence and providing liquidity, to the achievement of the major policy of the CBN, which is exchange rate stability.
The National President of the group, Alhaji Aminu Gwadabe, noted that before BDCs were allowed in the official foreign exchange market, the apex bank over the years tried many methods to ensure there is convergence of the exchange rates, but t was not successful.
“We have witnessed different auction system, Retail Dutch Auction, Wholesale Dutch Auction, all these did not deliver the desired result. But in 2006, when all the prescriptions of how to checkmate this problem of spikes in the forex market, the thought of allowing BDCs come into the official market was considered.
“By then we had a gap of about N50 ranging to N60, but as soon as BDCs came into the official market, within one month, the rates converged to a difference of only 50 kobo between the parallel market and the official market. So the BDCs have continued to play that role to the CBN and even to the government of Nigeria, to ensure that there is convergence of rates, elimination of spikes in the forex rates and that there is exchange rate stability,” he said.
Overtime, there have been arguments about the role of BDCs. Some even went to the extent of saying the BDCs are no longer relevant. The single exchange market that came in 2014, did not even recognise the role of BDCs.
“That regime did not last because they did not consider the role of the BDCs. But after consistent agitation by the association that there is need to acknowledge the role of the BDCs and include them, CBN reviewed its stance and offered us what they call the International Money Transfer Operations (IMTO) proceeds. Since then, there have been significant achievements.
“We have helped in eliminating the spike, volatility and uncertainty of exchange rate. Before people cannot plan. Manufacturers were crying, but now they are opting for the exchange rate above the inflation rate due to the stability been witnessed in the market.
“I think for the past six months, we have seen the dollar stable between N360 and N365 even at the parallel market. So this is a great achievement for the manufacturers, for economic planners. At least people can plan, order their inventory without much stress now.
“That has been one of the important roles BDCs play, in eliminating the spike, and also the gap between the exchange rates, which created opportunities for rent seeking. Speculations, which also used to be the other of the day in the forex market has also been eliminated. Also currency exportation, which is also an opportunity just because of the opportunities for rent seeking, is also not the order of the day.
“For an economy to grow, there must be some sectors doing the hard job. I can assure you that for this convergence that we have seen, the commendation should go to the BDCs, because it is their hard work that made it happen. Now, most of the BDCs not even in operations because the parallel market rate is even lower than theirs,” he said.
Right now the BDCs are complaining about operating under what they call challenges of multiple exchange rates, which they also relate to key issues for continued transparency and stability of the forex market.
The group’s chief said CBN is having two or three different exchange rates to ensure liquidity, alleging that such has been posing a challenge for them, as CBN is selling to banks at N358 per dollar and BDCs are buying N360 per dollar from the CBN.
“So it is a very big challenge for our members to operate. It is something that is making the business very unprofitable and some members are not able to meet up with their overhead cost and salaries for about six staffs per operator,” he said.
Another complaint that is ongoing is the bank charges. The operators said what the banks are charging on each BDC transactions is unusually high and they are calling for a level playing field and competitive rates among the various operators in the forex market.
“A situation where banks buy dollars from CBN at N358 per dollar and sell the same dollars to BDCs at N360 does not represents a level playing field or fair completion, given the fact that we operate in the same market segment.
“But we have hope, from all indices and parameters, that CBN is also coming to review their position on the matter. We are all working now on inflation and once they can achieve single digit inflation, then they will begin also to ensure that the exchange rate is headed southward to ensure growth, output and more employment.
“It is very possible to eliminate multiple exchange rates. When you look at determination of the exchange rate now, we have what we call managed float. And if you look at even where the exchange rate should go, if not the inflation rate that is higher than the Monetary Policy Rate, I am sure by now that the prediction of dollar at N250 would have been feasible.
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