In line with its core mandate as enshrined in the CBN act (2007), the maintenance of monetary and price stability has remained the main focus of the monetary policy since 2010, following the restoration of stability in the banking system after the global financial crisis of 2008.
This explains the tight monetary policy stance adopted by the central bank of Nigeria (CBN) over the years using Monetary Policy Rate (MPR) as the principal instrument to control the direction of interest rate and anchor inflation expectation in the Nigerian economy.
Supplementary intervention instrument by the apex bank included Open Market Operation (OMO), Discount Window Operations (DMO), Cash Reserved Ratio (CRR), Foreign Exchange (FX), and Net Open Position (NOP).
In reality, all these instruments have been used by CBN over headline inflation control in recent time and in the precedent. The entire instrument mentioned are responsible policy measures engage by the CBN in Nigeria economy stability drive. This also comes with handy rev up intervention in the agro based industry, electricity power, manufacturing, youth and creative industry and health care research sectors to spur economic. This CBN however retained all existing monetary rates in its recent Monetary Policy Committees (MPR) in Abuja.
Interestingly, today there are no overstating Nigeria’s economic troubles, as oil and gas the chief source of the Nigerian State forex receipt, has taken a serious plunge dragging down growth in its wake. More appealing is that Nigerian economic growth over the first quarters of 2021 measured by real GDP has been poor -no thanks to abysmal general economic performance.
The implication of some of the measures adopted to make forex available is a great concern to well meaning Nigerians. This bring to focus, what CBN and all it monetary policy instrument achieved in an environment characterized by inflationary pressure and rising risk of naira weakness and unscrupulous activities of BDC operators.
In today’s national parlance by its action, many expect and economic watchers have called on the CBN and its Monetary Policy Committees (MPR) to review the thrust of its monetary instrument, especially the unpatriotic excesses of BDCs.
So when the news broke into town last week Tuesday July 27th 2021 that CBN in its new policy briefing of Monetary Policy Committee (MPR) in meeting in Abuja, that the apex bank’s $5.7 billion (about N2.346 trillion) annual allocation to BDCS has become unsustainable, many were not too surprised. Similarly, the $20,000 allocation to each 5,500 BDCS in the country, which amounts to $110 million every week has become unrealistic.
This news gets financial analyst and economists expressing mixed feelings. opinions and reactions. My humble self was in a café preparing my usual weekly opinion article, when African Independent television (AIT) drew attention to headline framing of live programme beaming the picture of Godwin Emiefele CBN governor addressing financial and business correspondents of TV, Radio and News Prints Houses.
Understandably, CBN drive to have a unified exchange rates in line with IMF and World Bank recommendations could be seen playing out. Again, it is part of moves to check round tripping of forex and reduce the supply of forex to the parallel market. These are besides other facts we cannot deny.
Although, there are concerns that employment created by the BDC operators could be wiped out on the reasons of this ban from CBN. Equally, many analysts have come out with their concerns over the new policy and its immediate as well as long term implication. Majority are sympathizes to the dilemma of BDCs. There have been speculation and prediction of shock that will further shot up the dollar rates at the parallel market, although which will stabilize at the long run.
On the other hand the CBN is to be held accountable for the downside and not have expunged sharp practices by BDC operators. At the same time the CBN has done the right thing, especially coming at the heels of recent negative and harmful economy activities of some BDC operators. In retropect, in 2016 according to Emiefele BDCs shifted their original objectives as a small–scale forex buying and selling and had become whole sales dealers in foreign exchange to the tune of millions of dollars per transaction, in the process using fake documentation like Passport Number, Bvn, Boarding Passes and flight tickets to render weekly returns to CBN.
In the same vein, the BDCs were also accused of been interested in widening margins and profits from forex markets serving as conduit for illicit trade and financial inflow, dollarisation of the economy, floating official regulators’ rules among other infractions.
Unfortunately, since 2016, things did not change even as the apex bank failed to apply required action of sanction. Nevertheless it was self –indictment that portray a Nations Central Bank lackadaisical attitudes to enforce it rules.
Regrettably, this is not the first time the CBN would cease from funding BDCs with forex. In January 2015 we had same policy pronouncements from the apex bank; we just hope that they would be able to enforce it.
Apparently, like Nancy Ilo Nnaji the host of MONEY LINE With Nancy on AIT ask the CBN Governor, does the CBN have the political backing to implement the ban on forex sales to BDCs? The answer provided by the CBN governor was not disappointing as he point out that the Apex Bank has the political backing to execute the policy of cessation of forex sales to BDC.
Our case is this, CBN contrition at no more selling our critical national assets forex to BDC operators that squander forex generated by other sectors instead of a move to revamp the already hostile production environment that has keep the real sector comatose and entrenching high import dependency is a welcome development. Mushroom appreciates the statement from Financial Derivates Company (FDC) head by Bismarck Rewane as CBN stopping the biggest “Juicy Racket”. Against the hodge-podge of high and unrealistic exchange rates the CBN is meant to husband the country economy development with best monetary policy.
Adefolarin A. Olamilekan is a Political Economist and Development Researcher. He can be reached at adefolarin77@gmail.com or 08073814436, 08107407870
