What will the Naira gain if BDC operators are allowed to digitize access to forex?

The Association of Bureau De Change Operators of Nigeria (ABCON) has requested the Central Bank of Nigeria (CBN) to give the BDCs autonomy to go digital. The association disclosed this in a statement where it noted that the exchange rate volatility has continued to give rise to the slow economic growth of Nigeria recently, hence the desire to offer solutions.

ABCON called on the CBN to diversify the scope of operation and business model of the BDC operators from a base to less cash and digital platforms. According to it, this is in line with CBN’s tech reforms for BDCs for rate convergence and ABCON’s various digitization reforms for Bureau de Change operators from 2016 to date. The statement reads in part:

“As a proactive Organisation and an umbrella body of central bank licensed BDCs and In Line with the recent CBN plan reforms on BDCs to be tech savvy and Abcon’s BDCs’ various digitization reforms since 2016 to date, we urge the CBN to democratise and centralise the BDCs operational mechanism by allowing BDCs the autonomy to go digital.

‘’Given the above, we called on the CBN to diversify our scope of operation and business model from cash base to less cash and digital platforms,” it added.

The association further noted that its members now have transaction monitoring systems with installed IT office equipment and internet in their location, hence were capable of implementing various layers of automation of the business transformation process from manual to digital.

Flutterwave one step ahead

This request was followed by the news that digital payment infrastructure, Flutterwave, has now launched Swap, a cutting-edge solution that allows Nigerians to have immediate access to foreign currency at competitive exchange rates. The platform, launched in partnership with Wema Bank and Kadavra BDC, is backed and approved by the Central Bank of Nigeria (CBN) and is available to both individuals and businesses.

With the launch of Swap, Flutterwave has now digitalized the manual process of accessing foreign exchange in the country. The development is also coming at a time when Nigerians are facing limited access to foreign currencies. With Swap, the company now aims to address these challenges by providing a secure, reliable, and efficient way to exchange currencies.

However, Mr Folashodun Shonubi, the acting governor of the CBN, told reporters during the launch of Swap, that no new license was issued, even though he believes Swap could solve two major problems facing Nigeria’s foreign exchange market: the lack of collaboration between institutions and the dependence on cash. 

“No new licenses were issued, and we believe Swap will help moderate the rates for the BDCs and at the same time differentiate BDCs from black market transactions,”

Folashodun Shonubi, the acting governor of the CBN

Shonubi added that BDCs that refuse to go digital would be phased out of the system as the CBN tries to make the FX market cashless. “This helps us to differentiate between what is a regulated market, which is a BDC, as opposed to the ones which the central bank does not regulate.” He shared that the apex bank would monitor all transactions on Swap and unregulated foreign transactions would stop “because of what we’re doing here today.”

Will a digitalized forex benefit the naira?

According to ABCON, granting autonomy to BDCs and digitalising forex transactions will lead to a true market rate discovery. Also, the association said that it will enhance the achievement of the Federal Government’s harmonized foreign exchange rate policies. 

“A digital forex will make the BDC transactions monitoring system effective and conforming with their compliance obligation to statutory and regulatory requirements. It will harmonize and centralize the market and thus make the BDCs the moderating and correcting mechanism for the market. In the same vein, it will create additional employment for the over 40,000 employees direct and indirect in the BDC sub-sector. 

‘’Finally, it will usher in Transparency, accountability and ease of supervision,” it said.

According to experts in the fintech space, the shift to digital operations by BDCs could lead to increased efficiency in the foreign exchange market. Digital platforms can streamline processes such as currency trading, transactions, and reporting, reducing manual errors and delays. It could also encourage the adoption of fintech solutions in the forex sector.

In fact, they say it can make it easier for regulatory bodies like the Central Bank of Nigeria (CBN) to monitor and enforce compliance with foreign exchange regulations like know your customer (KYC) requirements. This regulatory oversight can help curb illicit financial activities and stabilize the Naira by reducing speculative activities that may harm the currency’s value.

Speaking to some BDC operators, they assert that digitalization may enhance price discovery mechanisms and reduce the wide spreads often associated with conventional BDCs. This could lead to a more stable and competitive exchange rate which will help the Naira stabilise against the dollar.

However, if not properly regulated, digital forex operations could introduce volatility if not effectively monitored and controlled. If the CBN were to grant the approval and autonomy to go digital, fintech platforms would need to navigate a complex regulatory landscape and ensure their platforms comply with all relevant forex regulations.