Naira drops, as BVN paralyses forex market

LAGOS — Activities at the retail segment of the official foreign exchange market were grounded, yesterday, as end users avoided bureaux de change (BDCs), to avoid submitting their Biometric Verification Number (BVN) for foreign exchange transactions.

N100 note

This, however, resulted in sharp increase in demand for dollars at the black market, prompting the naira to depreciate to N230 per dollar from N225.

Recall that the Central Bank of Nigeria (CBN) made the BVN a criteria for sale and purchase of foreign exchange by banks and bureaux de change (BDCs) effective  November 1.

Vanguard investigation, however, revealed that instead of  foreign exchange end users submitting their BVN to BDCs as mandated by the CBN, most of them moved to the black market for their foreign exchange needs. This in turn increased demand in the market, prompting the parallel market exchange rate to rise to N230 per dollar from N225 at the close of business on Tuesday.

Confirming this development to Vanguard, Mr. Harrison Owoh, Chief Executive Officer, H.J Trust BDC said that “most of the customers were not willing to submit their BVN due to fear of what it might be used for. This has slowed down sales  of forex by BDCs because we can’t sell without obtaining the BVN.”

An Abuja-based BDC manager, who spoke to Vanguard on condition of anonymity said that the problem was severe in Abuja, with BDCs having difficulty selling the dollars purchased from the CBN, last week.

“As I am talking to you, most BDCs in Abuja may not take dollars from CBN today (yesterday) because we  have not sold the ones we bought last week. The customers do not want to submit their BVN for security reasons. They are patronising the black market, that is why the rate has gone up sharply, and I can tell you, the rate might rise higher if the situation persists.”

President of Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, however, blamed the situation on lack of adequate awareness on the part of the CBN before implementing the policy. He said that while ABCON, as a partner in progress with the CBN supports the use of BVN as criterion for foreign exchange transactions, the association had, however, called the attention of the apex bank to the need to delay implementation to allow massive publicity to create awareness among the populace.

“We had predicted what is happening now, that in the absence of adequate awareness, patronage will shift to the black market, leading to depreciation of the Naira in the market”, he said.

Submitting BVN not security threat—CBN

Director, Corporate Communications Department of CBN, Alhaji Ibrahim Muazu wondered why anybody should be afraid of submitting BVN for transactions, adding that there was no threat in giving BVN for foreign exchange transactions.

According to him: “This probably has to do with people with illicit flows, and not for fear of the BVN itself.  And for people with illicit flows, they are avoiding documentation, the way they avoid the banks.

“To us, if not for the likely impact on the black market, it is a good development because it means the foreign exchange market is now demand driven. For example, if you go to the banks for ‘Form A’ foreign exchange transactions, it requires more than the BVN.

Submitting BVN for transactions is not a security threat. The BDCs cannot access the account details of their customers; they would just have the BVN for reporting purposes.

“The BVN is just an identity; the BDC cannot see your account details. It is just like asking you to submit your passport photograph. And the purpose is to make sure that people don’t buy foreign exchange above the limit allowed by the law.

There is a limit of $4,000 per individual per quarter. If one person buys $4,000 from one BDC, and another $4,000 from another BDC, there is no way anybody can verify it is the same person. All these things are supposed to be controlled by the BVN. All we want to clarify is that there is no threat in giving your BVN, it is an identity, in as much as you can give your passport photograph or even utility bills, as required for operation of dormant account.

“It is unfortunate if they are going to the black market and the black market does not have enough supply; but for us if they don’t buy from the CBN, if the CBN dollar is not sold, it would come back to us or there would be no demand for dollars next week, and this means we are conserving reserves. The only problem is the funding source for the black market will be limited and the price is high. But if I can give my BVN and buy dollars, maybe at N200, why should I go to black market and buy at N250? So the genuineness of the transaction is clear.”

Background to policy

The policy of making BVN criterion for foreign exchange transactions should have taken off August 15,2015 but was suspended by the CBN following criticism and warnings on the likely impact on the exchange rate of the Naira, and also to allow the Nigeria Interbank Settlement System (NIBSS) provide multiple channels for BDCs to verify BVN submitted by foreign exchange end-users.

The purpose of the policy, according to a CBN circular issued on October 20, was to stabilize the forex market, stem the rampant cases of forex leakages and illicit money transfers from Nigeria.

The CBN circular

The circular stated: “All banks and licensed BDCs operating in Nigeria as well as the general public are, therefore, put on notice that with effect from November 1, 2015, all customers desiring to purchase forex through all available channels in Nigeria must provide their BVN, which shall be validated by the CBN authorised forex dealer through the Nigerian Interbank Settlement System platform before the transactions are consummated.

“For the avoidance of doubt, the CBN shall from November 1, 2015, discontinue sale of forex to the BDCs that had not availed it the BVN of all its directors. Any authorised forex dealer that fails to provide the required information in its returns or provides a wrong BVN would be penalised and this may include the termination of the forex dealership authorisation.”

Consequently, on Monday, October 26, NIBSS unveiled a USSD and internet channel for verification of BVN. According to Mr. Oluseyi Adenmosun, the BVN Project Coordinator for NIBSS, BDC operators or anybody can dial the short code *565*1# on their phones from any part of the world for the validation. The USSD code when dialed will pop up a message asking for the BVN and the date of birth of the BVN holder to confirm the genuineness of the BVN.  The BDC operators also have the option of using the NIBSS website portal for the validation. The service costs N20 per enquiry.

Naira drops, as BVN paralyses forex market