Nigeria’s central bank ends dollar sales to exchange bureaus

The move follows pressure from the World Bank on Nigeria to provide a clearer foreign exchange management system - and converge its multiple exchange rates

Nigeria’s central bank is halting dollar sales to exchange bureaus, saying they have become conduits for graft and illicit flows of money.

“It is a huge haemorrhage on our scarce foreign exchange reserves and it cannot continue,” the bank’s governor, Godwin Emefiele, said on Tuesday.

The decision by the central bank, which held the benchmark lending rate at 11.5% for the fifth time in succession, follows World Bank pressure on Nigeria to provide a clearer foreign exchange management system – and converge its multiple exchange rates.

Nigeria has several exchange rates operating in parallel, a system put in place during a 2016 oil price crash because the government was seeking to avoid a large official devaluation of the naira as a matter of national pride.

Inflation has moderated after hitting multi-year highs this year because of the impact of the COVID-19 pandemic and falling oil prices, but foreign currency reserves remain under pressure.

Nigeria relies on oil for 90% of foreign exchange and another price crash last year severely limited its access to dollars.

The central bank has devalued the naira’s official rate three times since the pandemic took hold early last year, and has limited dollar access for imports, but a wide gap between the official naira exchange rate and the parallel market has persisted.

An exchange bureau official who declined to be named said it had yet to receive a formal notification from the central bank.

Emefiele said the bank would channel more foreign exchange to commercial banks for consumers who had legitimate needs, and that it would no longer process or issue new licences for bureau de change operators.

“We will deal ruthlessly with the Nigerian banks who have collaborated with these illegal foreign exchange operators,” he said.

Razia Khan, chief economist for Africa and the Middle East at Standard Chartered, said supplying more foreign exchange via other avenues would help, but would not necessarily solve the central bank’s problems.

“The challenge in the interim will be to stop the emergence of a new parallel market,” Khan said in an email. “Unless the supply of FX improves meaningfully, this is likely to remain a risk.”

Emefiele also accused some international organisations and embassies of utilising illegal foreign exchange dealers to fund their local operations in “flagrant contravention of our foreign exchange laws and regulations in Nigeria.”

The World Bank has said economic growth has resumed in Nigeria after the COVID-19 shock but is lagging the rest of sub-Saharan Africa, with food inflation, heightened insecurity and stalled reforms increasing poverty.

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