CBN as hostage to banks and BDCs

THE decision by the Central Bank of Nigeria (CBN) on the use of Naira debit and credit cards abroad raises some important issues which must be addressed in the interest of the nation’s economy. Nigeria has since 2013, become the largest importer of U.S. dollar due largely to importation of cash by deposit money banks (DMBs). That outcome did not come about overnight, but evolved with the active support or benign neglect of the CBN. The DMBs did not import foreign cash in order to play any direct or indirect role of foreign direct investors by acquiring a lasting management interest (10 per cent or more of voting stock) in local enterprises.

Rather the foreign cash was imported for purposes of domestically setting off, among other interests, dollar portfolio investments in equities, currency speculation and bonds for near and short-term profit at the expense of the economy. And as the CBN’s Monetary Policy Committee (MPC) once informed that foreign portfolio flows (irrespective of the ownership) are not employment-generating. Neither have such flows boosted fiscal buffers after crude oil prices crashed about one year ago contrary to the expectations of the MPC.

The apex bank notified of several policy reviews in the said circular to accommodate the large-scale importation of foreign cash, including, first, the suspension of the Wholesale Dutch Auction System (WDAS) and the re-introduction of the Retail Dutch Auction System (RDAS). In the wake of the present oil price slump, the Naira was devalued by 7.7 per cent to N168/$1 last November. But the Bankers’ Committee subsequently met and prescribed further devaluation of the naira. The CBN proceeded artfully to close the RDAS/WDAS window on February 18, 2015 and simultaneously adopted the interbank forex rate of N198/$1, which represented another devaluation of the Naira by 15.2 per cent. The DMBs and bureaux-de-change (BDCs) have over the years profiteered at the expense of the productive sectors from the varying margins of the multiple exchange rate systems that did and do exist. As a result, there prevail undesirable practices such as round-tripping, speculative demand for forex, rent-seeking, spurious demand and inefficient use of foreign exchange as the apex bank itself has chronicled.

Second, the then limit of $40,000 yearly per person on Naira debit and credit cards for transactions overseas was reviewed upward to $150,000 and settlement for the cards continued to be with interbank funds. But the fall in oil receipts has reduced the pool of forex for settling the debit cards. Consequently, the Bankers’ Committee has just pretentiously found that in some cases, the use of the cards resulted in both arbitrage and a drain in foreign resources needed to finance Nigerian industries. (No, these were the very incentives for introducing the financial product, which were obvious from the word “go”)

Consequently, “the CBN and Bankers’ Committee (slashed) the annual allowable drawdown for each bank customer” to $50,000. Curiously, the mercy showered on the country did not lead to outright discontinuation of the use of the cards. Instead, the dispensers of mercy fixed an amount above what existed before September 26, 2013, including “as a customer, if you have a dollar account, you will still have unfettered access to it”.

The preceding quotation may be taken together with a third accommodative policy review in the circular which allowed banks to continue to sell foreign exchange to BDCs subject to a maximum limit of $250,000 weekly per BDC. In effect, a bank customer is free to buy forex cash whether imported by banks or remitted home by Nigerians in the Diaspora, pay same into a dollar domiciliary account when it may be loaded into his credit card and, presto, begin to do as he pleases with the forex overseas and also round-trip at a profit. Additionally, under the lax and wooly CBN supervision, an exporter, after such orchestrated delay, could have his/her export proceeds lodged in a domiciliary dollar account and thence leap on to the forex merry-go-round to the accompaniment of music mocking the country. In that scenario, did the loudly Bankers’ Committee – advertised slash in the allowable drawdown on the Naira debit cards really save the country from the raging currency arbitrage and continued drain of available forex?

Besides, through fronts, part of the foreign currency imported by DMBs ends up in the capital market. Subscriptions to bonds that make up the non-investable national domestic debt fetch hefty unearned income by way of high interest debt service payments that line up to drain official forex from the economy. Similarly, on the Stock Exchange, DMB-engineered “foreign” portfolio investment in equities is wont to exit at the slightest whiff in the economy and this has precipitated the crash of the capital market on several occasions. The anti-economic activities, which thrive, owing to the unchecked access to foreign exchange, include large-scale importation of final products consisting contraband through the ports of neighbouring countries, treasury looting and stashing of looted funds in foreign bank accounts.

Nigerians deserve a patriotic deal from the Central Bank. There is therefore, the need to take three redemptive steps. One, the CBN should stop DMBs from importing fore cash for purposes of draining foreign exchange that genuinely accrues to the economy. Two, the Bankers’ Committee is unknown to the CBN Act and BOFIA. It is a committee that suborns the CBN to condone activities that run contrary to the principal objectives of the apex bank. And given the heavy foreign interest in the DMBs, foreigners, through the Bankers’ Committee, effectively direct the country’s monetary policies in a manner that facilitates her exploitation by them as in a banana republic. Consequently, neither the CBN should be member of the Bankers’ Committee nor should the Bankers’ Committee continue to exist as a trade union of DMBs.

Three, contrary to the national experience so far, the domiciliary dollar account is not meant to be the permanent abode of private sector forex to be frittered away or used for speculation. The CBN, which ordinarily should always know the volume of forex held in domiciliary accounts, recently discovered $34 billion in those accounts.