CBN strikes BDC's again   

July 28 (Lagos) - The Central Bank of Nigeria's Governor came out earlier this week and said that they will no longer sell FOREX to BDC's and instead sell directly to commercial banks. So all the BDC's in Nigeria are bad now and of course they did not provide any names or evidence of which BDC's flouted their rules and regulations. 

If few BDC's broke rules, should all BDC's pay for their actions? Instead can the licenses of those BDC's who broke the rules revoked? CBN Governor seems like the kind of teacher in school who punishes the whole class if one or two students are making noise. 

We have seen this same story few years ago when the same CBN Governor has enacted the same policy few years ago only to flip-flop after some time. We can expect the same thing to happen again this time again. They are saying the Naira has already weakened further since our Governor made his announcement.

The Central Bank of Nigeria has boosted the parallel market or what they call as the black market by limited supply of FOREX to importers of 41 essential items such as Palm oil, rice, tomato paste etc. The importers of these items have to access FOREX through these parallel markets thereby increasing demand for forex.

Another example of the CBN leadership boosting the black market is limiting Nigerians in diaspora from using more than $100 a month on their debit cards. Therefore these people need to source FOREX from the parallel market unless you plan to go abroad and become a beggar. 

The CBN Governors policies have also lead to record levels of inflation in the country especially food inflation with prices of beans, tomato and bread going through the roof. 

CBN as an institution had some great Governors in the past in fact the immediate predecessor of the current Governor, Lamido Sanusi enforced a clean up of the banking system, brought inflation down below 10% and kept Naira in a stable band around 150 to 1 Dollar during his term.

As soon as the current Governor took over, its been one blunder after another from the CBN. Whether it is the interest rates, treasury bill yields, Naira devaluations, forex bans, the list is a long one.

So CBN governor can continue with his speeches and policies. We know they cannot work because they lack basic economic sense and go against the principles of demand and supply. 

In a few months, CBN Governor will flip-flop on this decision in the opinion of the writer of this article. They also maintained the benchmark lending rate when the need of the hour is to increase the benchmark lending rate somewhere close to the inflation rate and the real lending rate in the market. Increasing interest rates also help support a local currency. These are basic economic theory principles you learn in economics 101. 

reporting for on Thursday, July 29 2021
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