Forex crisis: Worry over policy inconsistencies as CBN brings back BDCs

Indeed, bringing back the BDCs can help increase the supply of forex in the market, which can also help meet the demand for foreign currency and potentially ease pressure on the exchange rate that had been on a roller coaster these past few weeks.

With the new arrangement, CBN hopes working with BDCs would help formalise forex transactions that might otherwise take place in the informal window or black market.

Stakeholders said this step would enhance transparency and accountability and introduce competition into the forex market, which could lead to more competitive exchange rates.

However, depending on the level of demand and supply, influx of forex from BDCs might not be sufficient to significantly impact the exchange rate, especially if there are other factors contributing to the high exchange rate.

However, BDC operations can create opportunities for arbitrage if the official exchange rate and BDC rates differ significantly. This can lead to market distortions and rent-seeking behaviour.

If not properly managed, increasing the supply of foreign exchange through BDCs could contribute to inflation by increasing the money supply.

Therefore, BDC operations need to be closely regulated to prevent money laundering, illegal activities, and abuse of the system. Going by the policy inconsistencies and capacity of the apex, which has been demonstrated in recent years, ensuring proper regulation and oversight might be a challenge.