The Minister of Finance has overall responsibility for the Nigerian foreign exchange market structure under the Foreign Exchange (monitoring and miscellaneous) Act of 2004 and this could set the stage for a fierce rivalry with the Central Bank of Nigeria (CBN) according to dealers and lawyers.
They also say the CBN has no legal powers to control or peg rates for transactions in the interbank foreign exchange market as the apex bank appears to be doing at the moment.
Citing the Foreign Exchange (Monitoring and Miscellaneous) Act 2004 (FEMM) senior bankers as well some of the nation’s brightest lawyers note that the overall regulatory power for the foreign exchange market structure lies with the Minister of Finance and not the CBN.
The operational law is the FEMM Act of 2004 which establishes the Autonomous Foreign Exchange Market (AFEM) where transactions in foreign exchange shall be conducted.
Section 1(2) of the law says, “Subject to [the] Act, the Central Bank of Nigeria may, with the approval of the Minister, issue, from time to time, guidelines to regulate the procedures for transactions in the Market and for such other matters as may be deemed appropriate for the effective operation of the Market.”
Section 40 of the FEMM Act defines the market as “a market in which the Authorised Dealers, Authorised Buyers, foreign exchange end-users and the Central Bank are participants and may include any other participant that the Government of the Federation may, from time to time, recognise.”
The FEMM Act makes the CBN a participant in the foreign exchange market, just like any other participant, including the banks. Legal experts argue that because the FEMM is a law, a circular from the CBN cannot suspend it. Only another law duly passed by the National Assembly can repeal FEMM Act. This raises questions about recent moves by some in the CBN to benchmark for rates at which transactions can be conducted and leaves the door open for a legal challenge against the apex bank.
The FEMM act clearly states that “the rate at which transactions are executed in the market shall be the rate mutually agreed between the applicant purchaser and the Authorised Dealer, or the Authorised buyer”.
Olisa Agbakoba, human rights lawyer and Senior Advocate of Nigeria (SAN) believes that the “CBN has no power to regulate the interbank market or the rate applicable, as this is a matter for the pull of supply and demand.”
According to Robert Omotunde, investment research, Afrinvest, “Beyond looking at the legal implications of the control and peg on the foreign exchange market, the whole idea of control is undermining the efficiency of the foreign exchange market and the economy as a whole. The economy took some beating in June when the FX market was supposedly liberalised, leading to massive depreciation of the Naira from N197/US1$ to N315/US1$. The gains of a truly flexible FX market have been unfortunately missing, given the blatant control of demand, as well as price fixing, acts void of a market driven price formation mechanism. The controls have fueled further future expectation of Naira depreciation or contextually better put, devaluation (since the much repelled market controls are still held by the CBN). We are of the view that the CBN needs to renege on this new “anti-market” drive if indeed Nigeria is open for business. More importantly, the CBN needs to be pro-market to unify the already fragmented foreign exchange market for the good of the economy.
Bankers and lawyers have continued to express concern over the CBN’s insistence in controlling the exchange rate of the naira and say the situation has led to a drying up of dollar supply to the foreign exchange market. The CBN has also imposed sanctions against banks for selling the dollar above certain rates.
The CBN has taken its quest to control the market even further, with the recent action by the Department of State Security (DSS) to clamp down on BDC operators said to be selling the dollar above its approved rate. The attempt to clamp down on BDCs and black market operators has led to a freeze of dollar supply in that segment of the market and with many going underground.
BDC operators now quote the CBN rate but would most likely tell you that they have run out of dollars to sell. Sources tell BusinessDay that most transactions with BDCs are now being done over the telephone only, with those they know and at prices well above the CBN rate.
Only two BDCs were selling dollars at the rate of N408, when BusinessDay visited the Murtala Mohammed International Airport on Sunday evening. Others claimed that they had no dollars to sell. The only BDCs selling dollars were Sulah Bureau De Change and Tago Bureau De Change, who sold dollars at the rate of N408. IBRO Resources, which sold dollars at the rate of N400 on Friday, said it no longer had dollars to sell. Travelex was selling at N385.
Other licenced BDCs; Bossy Clean Exchange, Deravine BDC, Hass BDC, Kings BDC and Vida SEM BDC displayed on their counters that they sell at the rate of N408 to a dollar and buy at the rate of N400 to a dollar but said they did not have dollars to sell at the moment.
By our reporter
