Nigeria: The New Forex Policy

[Richard Akindele]

Lagos

In a follow-up to the Wholesale Dutch Auction System (WDAS) introduced last year, the nation's financial authorities last week liberalised access to foreign exchange (forex) by approving its sale by bureaux de change. The action will end the monopoly enjoyed by commercial banks in the sale of foreign exchange in the country.

In announcing the new policy, Central Bank of Nigeria (CBN) governor, Prof. Charles Soludo said that authorised forex dealers would be allowed to import hard currency in line with guidelines to be released by the CBN this week. They will serve as brokers within the interbank framework and can buy forex from the official market. This implies that the bureaux de change (BDCs) will be allowed to buy forex from and through the commercial banks. The immediate effect of this, it is to be presumed, is that forex will be more readily available to end-users.

As the CBN governor noted, the country has for 20 years moved gradually towards deregulation of the foreign exchange market by removing some of the heavy restrictions placed on the demand for forex by different segments of the society. But forex liberalisation actually started with the introduction in 2005 of the WDAS while a major component of the new forex regime is the hundred per cent increase in the basic travel allowance (BTA) from $10,000 to $20,000 and the personal travel allowance (PTA) from $8,000 to $16,000 per annum as announced last week by the CBN.

The new policy is, no doubt, one that ought to have a salutary effect on the nation's economy if faithfully implemented. As the CBN boss said, part of the aim of this is to converge the price of the dollar at both the official and parallel markets. This will be particularly good for the real sector. At present, while the dollar exchanges for N127.50 at the official market (WDAS), it goes for N150 at the black (parallel) market. Soludo attributes this disparity to the exit of weak banks (as a result of the consolidation) which had round-tripped and illicitly increased supply of foreign exchange to the parallel market. The other factor is that the level of documentation required of those who needed forex through the official market was so rigorous that many turned to the parallel market. It is to be expected that under the new regime much of that rigour will be eradicated.

The CBN governor is confident that measures so far put in place by this administration to achieve greater efficiency in the foreign exchange market is yielding good result. Moreover, he said, a convergence of the interbank and official exchange rates has been achieved.

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