Policy inconsistencies of the Central Bank of Nigeria (CBN) continued unabated at the weekend with the reinstatement of Bureau de Change (BDCs) operators in the bid to stabilise the foreign exchange (forex) market.

Indeed, bringing back the BDCs can help increase the supply of forex in the market, which can also help meet the demand for foreign currency and potentially ease pressure on the exchange rate that had been on a roller coaster these past few weeks.

With the new arrangement, CBN hopes working with BDCs would help formalise forex transactions that might otherwise take place in the informal window or black market.

Stakeholders said this step would enhance transparency and accountability and introduce competition into the forex market, which could lead to more competitive exchange rates.

However, depending on the level of demand and supply, influx of forex from BDCs might not be sufficient to significantly impact the exchange rate, especially if there are other factors contributing to the high exchange rate.

However, BDC operations can create opportunities for arbitrage if the official exchange rate and BDC rates differ significantly. This can lead to market distortions and rent-seeking behaviour.

If not properly managed, increasing the supply of foreign exchange through BDCs could contribute to inflation by increasing the money supply.
Therefore, BDC operations need to be closely regulated to prevent money laundering, illegal activities, and abuse of the system. Going by the policy inconsistencies and capacity of the apex, which has been demonstrated in recent years, ensuring proper regulation and oversight might be a challenge.

BDC rates might not always accurately reflect market fundamentals, leading to a disconnect between official exchange rates and BDC rates. In a circular ‘TED/FEM/PUB/FBC/001/007’ addressed to BDC operators, the CBN anchored its decision on its desire to improve the efficiency of the Nigerian foreign exchange market.

It said the spread on buying and selling by BDC Operators shall be within an allowable – limit of – 2.5 per cent to +2.5 per cent of the Nigerian Foreign Exchange market window weighted average rate of the previous day.

“Mandatory rendition by BDC Operators of the statutory periodic reports (daily, weekly, monthly, quarterly and yearly) on the Financial Institution Forex Rendition System (FIFX), which has been upgraded to meet individual Operator’s requirements.

“Operators are to note that with effect from the date of this circular, non-rendition of returns would attract sanctions, which may include withdrawal of operating license. Where Operators do not have any transaction within the period, they are expected to render nil returns”, CBN stated.