CBN and the burden of forex management

Last week Sanusi Lamido Sanusi, the CBN governor raised an alarm over consistent foreign exchange demand pressures coming domestically, but without any link to increased imports.

The non-import-related demand, Sanusi said, was as a result of the build-up in political activities in the country and increasing resort to dollarisation of the economy by the political class.

It is interesting that Sanusi has come out boldly to acknowledge the leakages in the economy and equally identifying the culprits. So the onus is on the CBN to check the activities of some banks, oil companies and Bureau De change (BDCs).This is so because the current tight monetary policy has made banking system unbalanced in terms of risk and rewards.

There is no doubt that some banks have become willing instruments in the hands of some highly placed Nigerians in perpetuating financial malpractices. A situation where banks put up demand for foreign exchange supposedly on behalf of their customers at the bi-weekly Wholesale Dutch Auction system (WDAS) without adequate supervision leaves much to be desired.While some of these Nigerians have resorted to pilling their savings in hard currencies for higher value during elections, occasioned by the falling currency, some of the banks on the other hand are struggling to survive due to acute liquidity squeeze.

While acknowledging Sanusi’s desire to defend the naira at all cost, through the tight monetary policy stance for the remaining part of his tenure up till June 2014, CBN must ensure that necessary measures are put in place to check the emerging ugly trend capable of threatening the foundation of the sector.

There is no doubt that banks’ quest to close liquidity gap created by hike in cash reserve requirements and closing of access to funds from other sources have made them vulnerable to external influences. However, CBN’s antidote to the falling naira can only be meaningful when government controls its spending and also the activities of the Bureau de change are monitored.

For quite some time the BDCs have been left on their own purchasing foreign exchange without accountability and responsibility.

 Interestingly, Sanusi has promised to continue to defend the naira in the face of these challenges, and to fast-track plans for adopting new regulations aimed at combating money laundering in the BDC segment.Therefore, CBN should as a matter of urgency stop direct sale of cash to the BDCs and institute policies that will check further demand pressures on foreign exchange and penchant demand for foreign exchange.

Sanusi should act immediately based on his promise at the press briefing. “We will come out with policies in the near future. …We think that there is something absolutely wrong with Bureau de Change buying hundreds of millions of dollars and not being able to account for them…” Sanusi said.

Sanusi justified the continued tight monetary policy stance by the Monetary Policy Committee saying that the committee was satisfied that the retention of the MPR, the CRR and further introduction of 50 CRR on public deposits in July had yielded their intended effects on stabilising the naira exchange rate while maintaining inflation within its target single range.

 The consequennce of this is that the over-dependence on treasury bills (T-bills) income by banks will no longer be sustainable and hence the need for them to be creative and change their models.

We encourage the CBN to match words with resolute actions in ensuring that there is no bubble in the forex market that would endanger the financial system.