Wednesday , 26 October 2016

CBN’s Forex Restriction Doing More Harm Than Good, Economist Says

A professor of Economics, Olu Ajakaiye, who is the past President, Nigerian Economic Society and the Chairman, African Centre for Shared Development Capacity Building, has explained the implication of the decision of the Central Bank of Nigeria (CBN) that Bureau de Change (BDC) operators must get forex from autonomous markets. According to him, the average Nigerian whom the government claimed to be protecting by this decision will be the ones to suffer.

“CBN is trying to conserve forex, in order to boost production. The thinking is that when you conserve forex and make it available for domestic production, it will help government to create jobs. But, we must not forget that the BDC have a role to play in making forex of small amounts available to producers for urgent need,” Prof. Ajakaiye said in an interview.

“For example, if a manufacturer is on the production process and a machine breaks down, he can quickly get forex of small amount from BDC to repair the machine  without waiting to carry out all the processes of getting forex from the official window. Therefore, if the official window can’t meet such emergency need and BDC is completely removed, the flexibility for small amount will be a challenge.

“The argument now is that BDC operators have moved away from that primary role of providing small amount of forex to producers into other areas not acceptable to the apex bank. For example, BDC getting forex from the official window market and selling to people who do not use it for the intended purpose of enhancing production.

“Now, what the CBN can do is to make arrangement for manufacturers who need small amount urgently to access it without waiting for the processes of getting forex from official window. The apex bank must provide a window for such emergency need of producers.

“If CBN cannot provide a window for emergency need and manufacturers are compelled to patronise BDC operators who will now source forex from autonomous market, it means exchange rate for manufacturing may be higher than what they obtain from official window. So, manufacturers will use that forex from BDC to set their own prices from the higher rate, instead of setting prices on the lower rate of forex from official window,” Ajakaiye said.

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