A former Deputy Governor of the Central Bank of Nigeria, Mailafia Obadiah has described the recent announcement by the CBN that it would no longer provide foreign exchange to Bureau de Change operators (BDCs) in Nigeria, as short-sighted.
In an announcement on Tuesday, CBN Governor Godwin Emefiele had announced that the CBN would also no longer allow new registrations to BDCs.
According to the CBN, there are about 5,000 BDCs which CBN governor said are acting fraudulently.
The directive had generated lots of concerns from the business community and economists, most of who believe the apex bank of Nigeria erred in the decision
In an interview with TNC correspondent, Mailafia believes that although the BCS have a lot of challenges and have constituted a kind of cartel, moving the powers to trade foreign exchange to the Commercial banks only, is not a very good choice.
According to him, experience has shown that the banks are no more efficient than the BDCs in the foreign market.
He said; “This kind of move will only work when we have a much better system in place and we know that now we have multiple exchange rates. This move by CBN will only create a non-transparent system with artificial shortages and manipulation of the system. For me, it is like taking from one cartel and giving to another. We have not really been told at what rate the banks are to operate. Is it at a free market rate or at a guided rate? If that is not official, then we are creating a much more bigger black market.”
The former CBN Deputy Governor made comparisons with other countries and highlighted that the CBN has no business continuously funding BDCs.
He cited countries like South Africa as a shining example of where banks are strictly in charge of foreign exchange market.
“If you look at the United Kingdom, the USA and most of the countries of Europe, banks and BDCs work together but I don’t believe that the Central Banks of those countries are in the business of doling out billions of dollars to the BDCs, even though the banks could help them at the initial stages. I don’t think that is how things work,” he said.
Mailafia highlighted three main issues he believes, the CBN would need to address in stabilizing the Naira, and proffered solutions.
He predicted that if the CBN is able to properly manage the frivolous demand for dollars by Nigerians, it might be possible to make an advantage of the situation.
“The issue as far as I am concerned is firstly, the transparency of the whole foreign exchange market.
“Secondly, is the lack of long-term strategic planning for the naira and thirdly, the problem of dollarization of the economy,” he said.
While noting that dollar may rise against the naira, Mailafia said if the situation is managed well and frivolous purchasers of foreign exchange who just want to buy and keep, are discouraged, it will help rationalize the system.