Always readily handy in most critical times of need to foreign exchange (forex) users, the BDC operators are there, come rain or shine, to provide alternative options for buyers and sellers of forex in their search for exchange rate best bargains, as they say in Nigeria, 24/7.
More recently, these peripatetic forex merchants have become so crucial to the demand and supply chains of the forex market in the country, especially demand for dollars and other foreign currencies becomes high and supply remains low.
With their catalytic roles in the forex market dynamics, the BDCs ensure forex availability to the critical retail sectors of the forex market and also help in bridging the exchange gap between official and parallel market rates. Today, either by error or design, the operators in Nigeria are not only officially recognized but have, other the years, been engaging the monetary authorities on the best means of stabilizing the forex rates.
Attesting to the criticality of the BDCs in the financial system in recent times, the National President of the group, Aminu Gwadabe, noted that before BDCs were allowed in the official foreign exchange market, the apex bank had tried many methods to ensure there was convergence of the exchange rates, but it was not successful.
He said: “We have witnessed different auction system, Retail Dutch Auction, Wholesale Dutch Auction, all these did not deliver the desired result. But in 2006, when all the prescriptions of how to checkmate this problem of spikes in the forex market, the thought of allowing BDCs come into the official market was considered.
“By then we had a gap of about N50 ranging to N60, but as soon as BDCs came into the official market, within one month, the rates converged to a difference of only 50 kobo between the parallel market and the official market. So the BDCs have continued to play that role to the CBN and even to the government of Nigeria, to ensure that there is convergence of rates, elimination of spikes in the forex rates and that there is exchange rate stability,” he said.
Over time, there have been arguments about the role of BDCs. Some even went to the extent of saying the BDCs are no longer relevant. The single exchange market that came in 2014, did not even recognise the role of BDCs.
“That regime did not last because they did not consider the role of the BDCs. But after consistent agitation by the association that there is need to acknowledge the role of the BDCs and include them, CBN reviewed its stance and offered us what they call the International Money Transfer Operations (IMTO) proceeds. Since then, there have been significant achievements.
“We have helped in eliminating the spike, volatility and uncertainty of exchange rate. Before, people cannot plan. Manufacturers were crying, but now they are opting for the exchange rate above the inflation rate due to the stability been witnessed in the market.
“I think for the past six months, we have seen the dollar stable between N360 and N365 even at the parallel market. So this is a great achievement for the manufacturers, for economic planners. At least people can plan, order their inventory without much stress now.
“That has been one of the important roles BDCs play, in eliminating the spike, and also the gap between the exchange rates, which created opportunities for rent seeking.
Speculations, which also used to be the other of the day in the forex market has also been eliminated. Also, currency exportation, which is also an opportunity just because of the opportunities for rent-seeking, is also not the order of the day.
“For an economy to grow, there must be some sectors doing the hard job. I can assure you that for this convergence that we have seen, the commendation should go to the BDCs because it is their hard work that made it happen. Now, most of the BDCs are not even in operations because the parallel market rate is even lower than theirs,” he said.
Right now the BDCs are complaining about operating under what they call challenges of multiple exchange rates, which they also relate to key issues for continued transparency and stability of the forex market.
The group’s chief pointed out that CBN was having two or three different exchange rates to ensure liquidity, alleging that such has been posing a challenge for them, as CBN is selling to banks at N358 per dollar and BDCs are buying N360 per dollar from the CBN.
“So it is a very big challenge for our members to operate. It is something that is making the business very unprofitable and some members are not able to meet up with their overhead cost and salaries for about six staff per operator,” he said.
Another complaint that is ongoing is the bank charges. The operators said what the banks are charging on each BDC transactions is unusually high and they are calling for a level playing field and competitive rates among the various operators in the forex market.
“A situation where banks buy dollars from CBN at N358 per dollar and sell the same dollars to BDCs at N360 does not represent a level playing field or fair competition, given the fact that we operate in the same market segment. But we have hope; from all indices and parameters that CBN is also coming to review their position on the matter. We are all working now on inflation and once they can achieve single digit inflation, then they will begin also to ensure that the exchange rate is headed southward to ensure growth, output and more employment.
“It is very possible to eliminate multiple exchange rates. When you look at determination of the exchange rate now, we have what we call managed float. And if you look at even where the exchange rate should go, if not the inflation rate that is higher than the Monetary Policy Rate, I am sure by now that the prediction of dollar at N250 would have been feasible.
The Central Bank of Nigeria (CBN) moved closer to realising its single exchange rate target by unifying dollar buying rates for banks and Bureau de Change (BDC) operators. The development has brought stability to the foreign exchange market and showed CBN’s proactive approach to ending multiple exchange rates tipped to permanently send currency speculators out of the market.
CBN acting director, Corporate Communications Department, Isaac Okorafor, said the decision was aimed at giving BDCs a level playing field to enable them compete favourably with other authorised forex dealers.
Okorafor urged the BDC operators to abide by the new guidelines and not exploit eager customers by selling above the N360 band. He warned that erring BDCs would be sanctioned in any case of infraction established against them. Before the review, the BDCs were buying dollars at N360 to a dollar, while selling same to customers at no more than N361.5/$1 while banks were buying at N357/$1 and selling at N360/$1.
Speaking further on the new BDC rate, Gwadabe described the development as reflection of the apex bank’s commitment in achieving a single exchange rate regime. He said ABCON had earlier expressed concerns about rate disparity and is now pleased with the review which will ensure transparency and stability in the forex market.
A market analyst, James Tifase, designing a financial service product requires a deep knowledge of the operating system. As such, an effective and efficient foreign exchange product must reflect a deep understanding of the foreign exchange market.
He stressed that the foreign exchange market is a vast worldwide network of buyers and sellers of currencies, operating from many major centers and countless minor ones, adding participants range from large commercial Banks and Multinational corporations with total daily turnover in excess of several billions of US Dollars, down to tourists who buy small amounts of foreign banknotes from Bureaux De Change.
“Thus, the international market where currencies are bought and sold in exchange for other foreign currencies are known collectively as the foreign exchange market. It is a market where counterparts rarely see each other to face.
“Rather, it is a world linked by telephone and telex lines, where the exchange of communication is rapid and to the point quotation of exchange rates on demand and dealing on the rates. Actual currencies are not seen, instead, they are transferred electronically from one account to another. Except for transactional needs for cash”, he added.