Market intelligence suggests that Bureau de Change (BDC) operators in Nigeria could be heading for a showdown with the Central Bank of Nigeria (CBN) due to alleged market infractions.
Reliable sources have revealed ongoing discussions between the regulator and the Association of Bureau de Change of Nigeria (ABCON) regarding unmet expectations.
The CBN has openly and privately criticized BDC operators for what it perceives as market sabotage and manipulation, allegations that operators have vehemently denied.
While the CBN has focused on the registered operators, numbering 5,689 as of December 2021, ABCON has consistently argued that the central bank needs to differentiate between market speculators and legitimate ABCON members.
Dr. Aminu Gwadabe, the President of ABCON, reiterated this point recently, emphasizing that the inability to distinguish between these groups remains a significant source of conflict in the sector.
Tensions are expected to rise following the CBN’s deadline for ABCON to enforce its newly-refreshed guideline. The CBN had introduced these changes to enhance the efficiency of the Nigerian Foreign Exchange Market, including capping the trading margin for BDC operators at -2.5% to +2.5% of the Nigerian Foreign Exchange Market’s previous day weighted average.
Also, the new rules mandate BDC operators to submit daily, weekly, monthly, quarterly, and yearly returns using the upgraded Financial Institution Forex Rendition System (FIFX). Failure to comply may result in license withdrawal, as part of broader efforts to bring order and accountability to the sector.
However, just days before the August 31 deadline, market reports indicate a significant gap between these regulations and the actual market situation. The intended stability from the margin cap has yet to materialize, with foreign exchange end-users still paying over a 19% premium at the black market.
Parallel market rates remain considerably higher than the CBN’s margin, further highlighting the challenge of aligning market dynamics with regulatory expectations. ABCON insists it is training its members to meet regulatory goals, but there are concerns about the thousands of individuals posing as BDC operators who lack understanding and compliance with the rules.
Regarding funding, there is uncertainty about the CBN’s plans. Gwadabe suggests that access to official windows, diaspora remittances, and international oil companies could provide funding streams to bolster market liquidity. However, the CBN’s capacity for direct funding remains uncertain due to liquidity constraints.
The divergence between informal and formal channels for remittances, exacerbated by high transfer costs, threatens the gains made through convergence measures. While regulation and intervention discussions continue, it remains clear that stabilizing the foreign exchange market is crucial for Nigeria’s macroeconomic stability.
Ultimately, the ongoing debate over BDC regulation and funding underscores the complex dynamics facing Nigeria’s foreign exchange market and its potential impact on the nation’s economy.
The CBN and ABCON must find common ground to address these challenges and foster a more stable and transparent foreign exchange market.
