Recently, precisely on February 21, 2017, the Central Bank of Nigeria (CBN), rolled out new Foreign Exchange policy aimed at stemming the dangerous slide of the Nigerian currency, the Naira in the unofficial market popular called “black market”.
Before the new policy, Naira exchange rate was hovering between N506 and N510 to a US$1 in the unofficial window. The official exchange rate (interbank) was N305 to US$1. The Bureau De Change (BDC) rate was N219 to US$1. The new policy has been hailed by market watchers, stakeholders and economists of high repute in the country.
The statement by the CBN signed by Isaac Okorafor, the bank’s Acting Director, Corporate Communications, states: “In continuation of efforts to increase the availability of Foreign Exchange in order to ease the difficulties encountered by Nigerians in obtaining funds for Foreign Exchange transactions, the Central Bank of Nigeria (CBN) is providing direct additional funding to banks to meet the needs of Nigerians for Personal and Business Travel, Medical needs, and School fees, effective immediately”. It further pointed out that “CBN expects such retail transactions to be settled at a rate not exceeding 20 per cent above the interbank market rate”.
The apex bank stated further that it had cleared the historical backlog of matured letters of credit at the inception of the current flexible exchange rate system. “The CBN would immediately begin to provide foreign exchange to all commercial banks to meet the needs of both personal travel allowances (PTA) and business travel allowance (BTA) for onward sale to customers”, it said. All banks, according to CBN, “would receive amounts commensurate with their usual basic documentary requirements”.
Another area of intervention is the School and Medical fees which had given those who needed foreign exchange to transact this kind of business sleepless nights. In this regard, the CBN stated thus: “Similarly, the CBN would meet the needs of parents, guardians and sponsors who are seeking to make payments of school and educational fees for their children and wards. Such payments must be made by commercial banks directly to the institution specified by the customer”.
The CBN assured the Nigerian public that it would ensure that “this process is as smooth as possible and that as many customers as possible get the foreign exchange they genuinely demand. This would also apply to customers seeking to make payments or purchase foreign exchange, for medical bills and paid directly to hospitals”. The apex bank promised the sustainability of the new supply policy and further directed banks to open offices at major Airports and other strategic locations to ease up pressure in the banks.
To work the talk, CBN instantly flooded the market with dollars to the extent that the banks now go to the CBN to source for more Naira to fund dollar purchase. Within few days of this policy the CBN pushed out a whopping US$500 million to the market. This amount was spread to the banks and BDCs. By the second week, the CBN also sent out another US$180 million for purchase. Instantly more dollars were chasing Naira at the official rate as many banks were unable to back their demands with Naira equivalent.
The banks and BDCs were directed to sell to end users apart from interbank customers at 20 per cent of the official rate. This means that instead of going to the unofficial market to buy at above N500 per dollar, they can now purchase from the new extended window at N360 to a dollar. To those who had been struggling to get foreign exchange for school or medical bills abroad, it was too good to be true.
Consequently, within a week of this new policy, Naira appreciated dramatically to N400 to a dollar on February 27, 2017 at the unofficial (black) market for example.
The downward trend in the unofficial window is expected to fluctuate until a realistic level is achieved if CBN can sustain the current supply level, as they had promised.
The AUTHORITY wishes to applaud the CBN for this laudable step which invariably came as a result of public criticism and outcry which allowed a policy that had been hurting the economy to continue. To most analysts, the question has been: why did CBN close its eyes and mind to alternative solutions and suggestions which have been coming from different informed quarters? Why is it that it was when the Federal Government directed the apex bank to take drastic measures to reverse the trend of Naira slide in the unofficial market that action was taken?
The CBN must learn to be proactive in its monetary policies in such a way that it allies with the fiscal policies of the government. We call on the bank also to put a proper mechanism in place so that this new policy is not abused by some greedy operators who are always ready to look at loopholes to shortchange and frustrate positive government policies.
It was clear that the former policy of restricting foreign exchange official rate to only manufacturers most of who cried out that they never got it, was abused as some crooks who operate within the system are said to have made huge amounts of money just by round-tripping. This must not be allowed to continue as the new system is capable of helping Nigeria exit the recession sooner than later. The current system of having multiple exchange rates must be looked into as this is not the practice elsewhere.