Can Bank Apps Take The Place Of Bureau De Change Operators In Nigeria?

Bureau De Change categorically refers to the buy and sell of foreign currency. Profit in the business is made by selling the currency at a higher exchange rate. There may also be charges (also known as commission) on the purchase of a foreign currency or the sale of it.

The CBN has banned the operation of Bureau De Change businesses in the country. According to them, this is followed by their observation that the BDC have misused their license by illegally trading FX amounting to millions of dollars, also tracing some behaviours to money-laundering activities. Speaking on the reason for the ban, Central Bank Governor – Godwin Emefiele says “they have turned themselves away from their objectives. They are now agents that facilitate graft and corruption in the country. We cannot continue with the bad practices that are happening at the BDC market”.

Going forward, the weekly supply of FX meant for the BDC will now be awarded to commercial banks. Retail end-users (people who need $5,000 and below) can now make FX transactions, but only at the bank. Arrangement has been made for these banks to sell either in cash, or electronically through bank app. The CBN has further stated that: “further to the Monetary Policy Committees, Deposit Money Banks (DMBs) are hereby reminded to set up teller points at designated branches across the country to fulfil legitimate FX requests for Personal Travel Allowance (PTA), Business Travel Allowance (BTA), tuition fees, medical payments, SMEs Transactions, amongst others.   

Any implications?

Although this is a great move by the CBN; as it will cut off harmful exploitation, there are certain concerns that this policy is yet to address, even as it will affect the common Nigerian.

Doing a flashback to the past, the CBN had banned BDCs in January 2016. As at then, the current exchange rate was N268/$1. Later in December of that same year, the exchange rate had depreciated to N495/$1. Public analysts had attributed the crash then to several factors; the biggest being the scarcity of dollar.

What has happened since this new policy took place?

Within 24 hours of the new policy, dollar which was N500/$1, further depreciated to N525/$1. This was gotten from abokiFX.com, an online site that aggregates parallel currency market rates. If the depreciation declines to about 46% as it was in 2016, then what should be expected, is a horrid N925/$1 exchange rate. 

There have also been concerns on expounding unemployment. Over 3,000+ Nigerians work as BDC operators. Banning that would be displacing them from their jobs. Kelechi Opara, an economist and Market Insights Officer at MMS Nigeria says: “it’s not a bad decision for the times we are in, but this isn’t the time to close businesses. We are talking about unemployment and more people are about to be thrown into the same labour market”. Opara opines that instead of placing a total embargo on BDC Operations, the CBN could “go the extra mile” of profiling and monitoring every BDC Operator and their licenses to ensure a straightforward system. “Even with the move, there’s no assurance that commercial banks will not become a supply chain in the BDCs market. The CBN should assume its regulatory role and create an enabling environment for legal businesses to thrive”, Opara adds.

How Successful does the new policy look?

Banks have been given the directive not to refuse any customer FX, especially if they have provided all documentation required of them.

CBN has also created toll free lines to monitor undue delays, rationing or diversion of FX.

Electronic applications and alert systems are to be created to update customers about the status of their FX requests.  

These measures are in place with the forethought that people will be discouraged to sell or trade dollars at black market rate if they can get easily access it from banks at a cheaper rate.

What does the other side of the coin present?

Banks are inundated with the resources to assume all operation that BDCs formerly were engaged. The effectiveness of this new policy will only be obvious if in the long run, banks carry out FX operations in such a way that money changers become completely dysfunctional.

What may stall the complete immersion of this policy may be the hierarchical processes involved for approval of FX requests, which may take days to pull through with a commercial bank, as opposed to the transaction completed within minutes with BDC Operators. 

The circulation and availability of more FX for banks is a good idea, but if bank charges do not come at an all-low rate, the black-market rate may thrive; albeit undercover.

These setbacks notwithstanding, as banks try to adjust to CBN’s directive, their direction will determine how the parallel market will vary from the official rate of N410/$1. Also, chances are that the ban will put more pressure on Naira in the parallel black market.