Commercial Banks And BDCs Discuss Strategies To Boost Dollar Liquidity And Stabilize Naira

Investigations conducted by The Nation have revealed that commercial banks and Bureaux De Change (BDCs) are engaged in discussions aimed at enhancing dollar liquidity and preventing the further depreciation of the Nigerian naira.

The collaboration, currently under scrutiny by the Central Bank of Nigeria (CBN), entails banks selling the proceeds of international money transfers to BDCs at the prevailing Investors and Exporters (I&E) window rate.

Subsequently, BDC operators would offer these foreign currencies to retail end-users.

An undisclosed source, identified as a BDC operator, disclosed that BDC operators have been advising the CBN to revisit its 2016 model, which allowed banks to sell dollars to BDCs. The source shared this information on the condition of anonymity.

In anticipation of the potential implementation of this plan, the CBN issued a circular to BDCs over the weekend. The circular, signed by O.S Nnaji, the Director of CBN’s Trade and Exchange Department, is titled “Operational Mechanism for Bureau De Change Operations in Nigeria.” Its aim is to enhance the efficiency of the forex market.

The CBN has set a spread range of -2.5 percent to +2.5 percent for buying and selling by BDC operators, based on the forex market window’s weighted average rate of the previous day.

One of the crucial requirements outlined in the circular is the mandatory submission of periodic reports (daily, weekly, monthly, quarterly, and yearly) by BDC operators on the Financial Institution Forex Rendition System (FIFX), which has been upgraded to align with individual operator’s needs.

Notably, the CBN had halted dollar sales to BDCs in July 2021, citing their involvement in illicit transactions. This move led to the suspension of new licenses for BDCs and the redirection of weekly dollar sales to commercial banks.

However, the commercial banks did not fully fulfill their assigned responsibilities, as many failed to provide dollar allocations to customers in need of foreign exchange.

The source asserted that the adoption of the 2016 policy had significantly strengthened the naira against the dollar and other global currencies.

A circular dated July 22, 2016, signed by W.O. Gotring, the former Director of CBN’s Trade & Exchange Department, outlined the sales of foreign currency proceeds from international money transfers to BDC operators. The directive aimed to stabilize the exchange rate and encourage participation from key stakeholders in the foreign exchange market.

This directive mandated authorized dealers, acting as agents for approved International Money Transfers Operators (IMTOs), to sell foreign currency resulting from inward money remittances to licensed BDCs.

In addition, an August 9, 2016 follow-up circular from the regulator limited weekly dollar sales to each BDC by authorized dealers to $30,000.00. Each BDC was permitted to choose a preferred authorized dealer – Deposit Money Bank (DMB) – from which to procure the specified amount.

These funds, once purchased by BDCs, were designated for Business Travel Allowance/Personal Travel Allowance (BTA/PTA), overseas school fees, and overseas medical fees. Transactions were capped at $5,000 each.

Reacting to recent developments, Dr. Aminu Gwadabe, the President of the Association of Bureaux De Change Operators of Nigeria (ABCON), emphasized that the CBN’s circular on operational mechanisms has brought order and confidence to the market. He attributed significant gains by the naira in both official and parallel markets to the apex bank’s directive regarding BDC operations.

Gwadabe stated, “ABCON welcomes the CBN’s circular, which has set the stage for BDCs’ integration in the harmonized I&E window using the weighted average closing rate for BDC trading and return rendition obligations.”

He added, “The circular also serves as a message to non-compliant operators that they risk losing their operational licenses for not adhering to the directives. Operators engaged in trading are required to send transaction returns, while those not engaged can submit ‘Nil returns’ as specified.”

To sustain the naira’s upward trajectory, Gwadabe advised members to comply with the new requirements. He also requested the reinstatement of the July 2016 circular, which allowed banks to engage with BDCs on diaspora remittances and the autonomous window, ultimately enhancing liquidity and contributing to exchange rate stability.

Gwadabe assured the apex bank of ABCON’s commitment to Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) procedures, emphasizing the association’s dedication to corporate governance, record-keeping, return submission, and KYC screening solutions.

As of the past weekend, the naira closed at N739.52/$ at the I&E window and appreciated to N810/$ in the parallel market. The local currency has experienced over a 30 percent loss in value within the past year.