Monetary authorities in developing economies aim to avoid wide gaps between official exchange rates and parallel exchange rates, therefore exchange rate stability is a very important monetary policy target. This stability also maintains a healthy rate between currencies. In Nigeria today, the roles of BDCs in maintaining a stable foreign exchange cannot be over emphasized.
It is worthy to note that a BDC is a licensed body by the Central Bank of Nigeria, CBN, meant to carry out foreign exchange transactions. They are defined and regulated by the CBN to carry out retail FX services which may include Personal Travel Allowance (PTA), Business Travel Allowance (BTA), medical and school fees FX services.
Firstly, the major role of BDCs to the stability of foreign exchange according to the Association of Bureau De Change Operators of Nigeria is to ensure that FX is made readily available to the retail market who needs it on a daily, this would assist in closing the gap between the official and parallel market exchange rate. ABCON says that this role if duly fulfilled would help the CBN achieve its major policy which is exchange rate stability.
The ABCON President, Alhaji Aminu Gwadabe said as regards the roles BDCs in the stability of foreign exchange.
“We have witnessed different auction systems, Retail Dutch Auction, Wholesale Dutch Auction, all these did not deliver the desired result, until 2006, when all the prescriptions of how to checkmate this problem of spikes in the forex market came, then the thought of allowing BDCs come into the official market was considered. By then we had a gap of about N50 ranging to N60, but as soon as BDCs came into the official market, within one month, the rates converged to a difference of only 50 kobo between the parallel market and the official market. So, the BDCs have continued to play that role to the CBN and even to the government of Nigeria, to ensure that there is convergence of rates, elimination of spikes in the forex rates and that there is exchange rate stability.
This fortune, however, did not just come easily, it took consistent agitation by the association that there is a need to acknowledge the role of the BDCs and include them, CBN reviewed its stance and offered us what they call the International Money Transfer Operations (IMTO) proceeds. Since then, there have been significant achievements.
We have helped in eliminating the spike, volatility, and uncertainty of exchange rate. Speculations, which also used to be the other of the day in the forex market has also been eliminated.
“For an economy to grow, there must be some sectors doing the hard job. I can assure you that for this convergence that we have seen, the commendation should go to the BDCs, because it is their hard work that made it happen”. he said. The Guardian
The roles highlighted above goes to show how much Bureau De Change influences foreign exchange stability in Nigeria positively, and we can say that with more consistency in FX transactions our economy can only get better in terms of stability of the foreign exchange.