Posted by By AMECHI OGBONNA, ISAAC ANUMIHE and SEUN ADESIDA, Ilorin on
The Central Bank of Nigeria (CBN) may soon withdraw its participation from the nation's foreign exchange market. The bank, which has been the major umpire in the Dutch Auction in which end users of foreign currencies procure their stock for importation of raw materials and machinery, currently contributes about 40 per cent foreign currencies sold at the daily auction.
The Central Bank of Nigeria (CBN) may soon withdraw its participation from the nation's foreign exchange market. The bank, which has been the major umpire in the Dutch Auction in which end users of foreign currencies procure their stock for importation of raw materials and machinery, currently contributes about 40 per cent foreign currencies sold at the daily auction.
According to the CBN deputy governor in charge of economic policies, Dr Sarah Alade, the bank is considering exiting the market now that the liberalisation policy is fast taking root.
Although she did not give indication as to when this would take effect, she pointed out that the CBN was pleased with the response coming from the private sector which currently accounts for about 60 per cent of resources in the market.
Dr Alade noted that sometimes CBN would come to the market with foreign exchange to sell but would not get buyers because the private sector was also generating enough for its use.
She described the development as quite healthy since it was an indication that they are responding to government's clarion call for people not to continue to depend on government for their foreign exchange needs.
She said it was necessary to avoid a situation where any sudden shock on the official source would hurt the private sector and the entire economy.
According to Alade, it was against this background that the CBN had to license more private sector operators to run bureaux de change outlets while encouraging oil companies and multinationals to participate more actively in the market.
She explained that the measure has simplified access to the market.
Meanwhile, the apex bank has explained why it cannot stop payment mandates to the three tiers of government even when it is injurious to the economy.
The bank's deputy director in the foreign operations department, Mr Jide Aluko who spoke on Monetisation of Nigeria Foreign Exchange Inflows at the CBN workshop in Ilorin noted that the 1999 Constitution makes distribution of inflows into the Federation Account a contributional right to the federal, states and local governments.
Against this background, the Central Bank has no constitutional powers to stop payment request from any of the tiers of government even when it was obvious that such actions would create inflationary pressures on the national economy.
Citing Section 162 (3) of the constitution, Aluko explained that the law provides that "any amount standing to the credit of the Federation Account shall be distributed among the federal, state and local councils in such a state and on such terms and in such a manner as may be prescribed by the National Assembly."
For this reason, he pointed out that all revenues received both in foreign and local currencies on behalf of the Federal Government are to be credited to the Federation Account.
A large chunk of the revenue earned on behalf of government comes from sale of crude oil, petroleum product taxes, royalties by oil companies, withholding tax and company income tax.
According to him, in order to give effect to the constitutional provision, such receipts when collected are monetised by the CBN and are credited to the Federation Account for onward distribution to the federating units.
Said he: "We are just like a banker to the government and just as your banker cannot stop payment to you even when you want to waste it or injure yourself with it, the CBN cannot withhold payment mandates to the government otherwise it will be in breach of the constitution."
He noted that it was even the ingenuity of the CBN that has led to the creation of such dedicated accounts like the Excess Crude Account despite agitation from some state governments that everything should be shared out when received.
Aluko said it was good for the bank to keep such account as a way of saving for the rainy day since the price of oil is dependent on external forces.
As advisers to the government, Aluko said the CBN would continue to advise it to prudently apply these income in such a manner that will be beneficial to the economy.