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CBN Targets Rate Convergence with Directive to Sell Remittances to BDCs - Thisday
The Central Bank of Nigeria (CBN) yesterday explained that its directive to banks that act as agents of international money transfer operators to commence the sale of foreign currency remittances to licensed Bureau De Change (BDC) operators was aimed at achieving exchange rate convergence.
The Special Adviser, Financial Markets to the CBN Governor, Mr. Emmanuel Ukeje, who said this in a phone interview with THISDAY, stressed that the move should not in any way be described as a policy sommersault, as seen by some commentators.
THISDAY reported at the weekend that the central bank had directed authorised dealers who are agents to approved international money transfer operators to sell foreign currency accruing from remittances to licensed BDCs as part of efforts to boost dollar liquidity in the market and ensure stability of the exchange rate.
In its circular, the central bank said: "The foreign currency proceeds of international money transfers sold to BDC operators shall be retailed to end-users in compliance with the provisions of Anti-money Laundering Laws and observance of appropriate Know-Your-Customer (KYC) principles, including the use of Bank Verification Numbers (BVNs)."
Lending further insight into the directive, Ukeje explained that it was not a policy reversal, adding that the CBN would not be the sole source of FX funds to the BDCs.
"Previously, we were allocating forex, but we decided that we were not going to be taking money from our reserves to be doing that.
"So it is those remittances that are going to banks that we want used to fund that market, so that rates can come down. That market is very dry, that was why we decided to open the window.
"So it is not a policy somersault because you remember that even when we decided to stop funding them, we said they could get their money from autonomous sources, and that the central bank will not sell dollars to them," he said.
Ukeje pointed out if the central bank does not take any step to support the BDCs, the exchange rate volatility observed recently might continue, thereby disrupting the objective of the CBN.
"We keep dialoguing. We cannot say we shut them (BDCs) out completely. Nobody is saying export proceeds should be given to them.
"We want them to have access to the funds to oil their businesses. So to a very large extent, it should help ease the pressure in the FX market.
"What happens is that if they are sure of more sources of forex, people would be calm. Now, if this other source which is supposed to be supplementing the interbank market gets supply, no matter how small it is, we think it would reduce the panic in the system," he added.
Ukeje said despite the decision by the central bank to pave the way for a purely market-determined exchange rate on the interbank market, the banking sector regulator would not abdicate its role as a market participant.
"The central bank will not shirk its role as an interventionist in that market. We will continue to play that role because it is one of our mandatory duties to the moderate rate depending on what happens in that market," he added.
But as the CBN's Monetary Policy Committee (MPC) commences its two-day meeting today, experts have advised members of the committee to be more proactive than reactive in their response to the challenges in the economy.