The Central Bank of Nigeria (CBN) has been consistently criticised for the manner in which it has managed the Nigeria forex market.
One of the complaints is that the directive by the Central Bank of Nigeria to commercial banks to allocate 60 per cent of their forex sales to the manufacturing sector and at the rate advised by the CBN.
The second major complaint is that the CBN has refused to allow a complete float of the exchange rate, by dictating to the banks (and bureau de change (BDC) operators) the rates at which they may deal.
By these actions, the Central Bank of Nigeria has been accused of causing distortions in the forex market, and these distortions have either further caused, or have manifested in, the reduced supply of forex to the “official” market, the existence of multiple exchange rates, and the wide gap between the “official” exchange rates and prevailing exchange rates in the “parallel market” and “black market.”
Whilst I understand the concept of a “black market” in which illegal forex transactions are executed, I think that the concept of a “parallel market” is a euphemism adopted in an attempt to legitimise illegal forex transactions conducted by entities that purport to have the licence to carry on such transactions.
As far as the forex market (Monitoring and Miscellaneous Provisions) Act (Foreign Exchange Act or the Act) has enacted, there is only one lawful market for the conduct of forex business in Nigeria.
Namely the authorised foreign exchange market (Afem); and in which transactions are to be conducted in accordance with the provisions of the Act (see s. 1(1) of the Act).
The Act also warns that nothing therein shall be construed as permitting any unrestrained or general dealing in forex on terms inconsistent with its provisions (see s. 11(a)). Section 7 of the Act further enacts the parties that may conduct transactions in that market.
Also, the fact that transactions as between different participants in the Afem may be conducted at different rates does not mean the existence of more than one lawful market for the conduct of forex transactions in Nigeria.
Indeed, s. 9 of the Foreign Exchange Act, by permitting parties to a forex transaction to freely determine the rate of exchange for their specific transactions, suggests (clearly in theory) the possibility of a multiplicity of rates in the market. And this takes me back to the two complaints against the Central Bank of Nigeria.