Traders under the umbrella of the Association of Bureau De Change Operators of Nigeria (ABCON) explained the reasons behind the widening gap between official and parallel market exchange rates.
Bureau de Change (BDC) operators attributed the growing disparity in exchange rates to the acute shortage of dollars due to the continued suspension of foreign exchange sales to BDCs by the Central Bank of Nigeria (CBN), as well as the lack of credibility of the exchange rate policy. .
This was revealed by ABCON in its quarterly review of the economy for the first quarter of the year 2022, expressing concern over the inability of fiscal and monetary authorities to bridge the wide gap between the parallel market and interest rates. multiple exchanges in the country.
The review showed that the spread between the official and parallel market (premium) exchange rates widened to 171.83 Naira per dollar at the end of the first quarter (Q1’22) from 106.33 Naira per dollar on Wednesday, July 28, just a day before the apex bank suspended dollar sales at BDCs.
A premium refers to the result of market restrictions that stimulate the unofficial supply and demand for foreign currencies, a symptom of incoherent fiscal and monetary policies.
What the ABCON says
ABCON said the country’s fiscal and monetary policy cannot stop the bounty that rent-seeking forex traders were chasing, noting that multiple exchange rates cause distortions by manipulating relative prices in the economy and increase opportunities. for this rent-seeking behavior.
The association said: “It also showed the lack of credibility of the foreign exchange policy, given the level of foreign exchange reserves.
“This fiscal and monetary policy in Nigeria cannot reduce the premium that rent-seeking forex traders were chasing, and it is worrying and contributes heavily to distortions in the economy.
“Multiple exchange rates cause distortions by manipulating relative prices in the economy and expand opportunities for rent-seeking behavior for those with access to lower exchange rates.
“When multiple exchange rates are corrected, it would promote a more efficient application of relative market-determined prices to allocate resources in the economy.”
The Association also pointed to the country’s huge public debt and growing level of poverty and urged the federal government to reconsider its strategy of relying on borrowing to grow the economy.
ABCON urged the FG to also reconsider its current strategies of total reliance on debt for the survival of the economy, failing which it could plunge the country into a coma, noting that failure to address the issue increase in poverty would necessarily fuel crime and insecurity.
What you should know
- Recall that the CBN in July 2021, announced the cessation of the allocation of dollars to BDC operators, explaining that they have become a conduit for illegal financial flows working with corrupt people to launder money in the Nigeria.
- CBN Governor Godwin Emefiele noted with disappointment and great concern that BDC operators have abandoned the original purpose of their establishment, which was to serve retail end-users who need 5,000 $ or less, and instead became wholesalers, illegally selling currencies for up to millions of dollars per transaction
- ABCON in October 2021, advocated some measures to help deal with the continued depreciation of the naira. This includes a call for the CBN to restructure the BDC sub-sector.
- He also called on the CBN to resume dollar sales to the public through BDCs, especially given the failure of intervention through depository banks to bridge the gap between the official exchange rate and the parallel market.