Agents of the Department of State Services (DSS) on November 9 raided the offices of some bureau de change (BDC) operators in Lagos and arrested them for selling the US dollar above the stipulated exchange rate of N385. The agents raided Hajj Camp and Murtala Muhammed Airport and closed many BDCs. DSS agents also stormed […]
DSS raids on BDCs
Agents of the Department of State Services (DSS) on November 9 raided the offices of some bureau de change (BDC) operators in Lagos and arrested them for selling the US dollar above the stipulated exchange rate of N385. The agents raided Hajj Camp and Murtala Muhammed Airport and closed many BDCs. DSS agents also stormed some BDCs in Kano, arrested over 20 operators at Wapa Bureau De Change market in Fagge and closed bureaux de change. Secret police agents had earlier directed all BDC operators to peg the dollar at N400 and buy at N390 from customers. Soon afterwards, DSS began arresting erring BDCs as well as unlicensed and illegal operators.
Central Bank of Nigeria [CBN] Governor Godwin Emefiele justified the DSS raids, saying the nation’s foreign exchange laws forbid street trading of foreign currency. CBN allows each BDC to buy dollars from Travelex at N381 per dollar and sell to end users at N385 per dollar. Last week CBN sold $8,000 to each BDC representing a 46% decline when compared to the $15,000 usually sold per week to each BDC. CBN, some dealers have said, did this to accommodate BDCs from other zones apart from Lagos and Abuja which invariably weakened the Naira’s exchange rate. CBN thus remains the one dominant supplier while we have so many buyers who many say are only out to round trip the dollar.
Apart from questions about the legality of the DSS raid, the wide disparity between official and parallel market rates is the result of CBN’s reluctance to relinquish its oppressive monopoly on the foreign exchange market. Invariably, monopolists will distort market prices in any sector. There will be no need for CBN or the DSS to harass the BDC operators in the first place if CBN allows the exchange rate to be determined by the usual forces of demand and supply. The raid on BDCs is in fact a deliberate distraction so that the blame for price distortions will be transferred to BDCs.
The apex bank’s monopoly triggers a spiral of negative consequences such as the widely divergent prices in the forex market. The DSS raids, though motivated by patriotism, may not be sustainable, will not work but only aggravate the situation by raising the cost of the dollar and other currencies and also succeed in driving the black market operators to go underground. We need a genuine, well articulated forex policy because whatever gains the Naira exchange rate records will only be temporary so long as the fundamental and deliberately created market distortions persist.
Therefore the DSS raid on the bureau de change operators is nothing but a short term measure to a lingering problem. What is needed is a long term solution to the crisis. Can BDCs source their money independent of CBN? Government has over the years been monetizing its dollar receipts from crude oil exports. This means that the issue of militancy in the Niger Delta should be quickly addressed. The more dollars we earn, the more Naira becomes available in the system to drive higher prices of goods and services. Consequently, when CBN also auctions rations of dollars in such a market, it is inevitable that the Naira rate will continue to be threatened.
The Naira is in free fall. Nigerians no longer trust the Naira whose value is falling. CBN can reduce excess liquidity by paying higher interest rates to induce banks to part with the surplus cash in their custody. But this approach will always increase interest rates and crowd out the real sector from access to cheaper investible funds. Thus, to evolve an appropriate Naira exchange rate that stabilizes the foreign exchange market, we must allow the naira to find its true value. On their part, BDC operators must strictly observe the terms and conditions of their licenses and they should render returns and should play by the rules of the game.
