Dealers in Nigeria’s foreign exchange market have raised several concerns over a foreign exchange Bill, which has just gone through second reading in the Senate.
The bill sponsored by John Enoh, who is also chairman, Senate Committee on Finance, seeks to repeal the Foreign Exchange (Monitoring and Miscellaneous Provision) FEMM Act , Chapter F34, laws of the Federation of Nigeria, 2004, and enact the Foreign Exchange (Control and Monitoring) Bill to establish a Foreign Exchange Market in Nigeria, provide for the control, monitoring and supervision of transactions conducted in the Foreign Exchange Market.
“It is interesting that there are two (2) Bills, the first one by the Nigerian Law Commission, merely seeking to amend the current Act, whilst this particular one is seeking to repeal the current Act. The latter is the most destructive, as it takes away s.9 of the current Act which allows buyer and seller to agree their rate,” said a dealer who has reviewed the new John Enoh sponsored Bill.
The John Enoh Bill is different from another bill proposed by the Nigeria Law Reform Commission (NLRC), which seeks to amend the existing the FEMM Act but which has also controversially proposed a jail term for Nigerians holding foreign exchange beyond 30 days. But dealers have noted that the John Enoh Bill is even more damaging to the foreign exchange market.
“The John Enoh bill does away with the notion of “autonomous foreign exchange market” and uses the broader phrase “foreign exchange market”. It also defines transactions in the newly defined foreign exchange (FX) market as including the ‘public’, so this could be interpreted, if the need arises, to catch all FX market segments which were not hitherto caught, including the ‘parallel market’ (see sections 1, 18, 19 and 48)”.
But like the NLRC Bill, the John Enoh Bill also seeks to take away the supervisory powers of the Minister of Finance over the foreign exchange market, which are currently enshrined in section 6(3) of the FEMM Act (see section 3).
But of most concern to dealers in the foreign exchange market, is the fact that the John Enoh Bill seeks to introduce “the concept of basic exchange rates”. Section 4(1) provides: “The [CBN] may determine the basic exchange rate, rate of purchase and sale of foreign exchange and arbitrated exchange rate…in foreign exchange transactions, if it is necessary to do so for harmonious and orderly foreign exchange transactions in Nigeria.” Section 4(2) then goes on to provide: “Where the [CBN] determines the basic exchange rate, residents and non-residents shall perform transactions in conformity with such basic exchange rate”.
Dealers say this provision is a clear and unambiguous move away from section 9 of the FEMM Act, which guarantees the rates in the market, shall be as “mutually agreed” between participants.
“This new Bill threatens to shred apart the framework for semi liberalised market with the idea of “basic exchange rates”. The idea that the regulator “may determine the basic exchange rate, rate of purchase and sale of foreign exchange and arbitrated exchange rate, in foreign exchange transactions” and that, when so determined, “residents and non-residents shall perform transactions in conformity with such basic exchange rate” is a fundamental shift from the regime we currently run in this country” said another dealer.
But the sponsor of the Bill, John Enoh, says that the 1995 FEMM Act is outdated and this Foreign Exchange bill is aimed at updating it.
“lt is obvious from all indications, that the 1995 Act in its present form requires to be comprehensively reviewed to remove its out-dated provisions and to bring in new provisions to match up with new challenges in the regulation of the Foreign Exchange Market, in line with the requirements of Article 14 of the International Monetary Fund (’lMF’) Articles of Agreement, 2011,” the bill sponsor, Enoh said while presenting the bill.
“This is exactly what the present Bill has done.”
The proposed Foreign Exchange (Control and Monitoring) Bill seeks to establish a foreign exchange market; Provide for the regulation, monitoring and supervision of the transactions conducted in the market and for related matters; and also Contribute to the sound development of the National Economy by striving to facilitate foreign transactions.
It also seeks to maintain an equilibrium of balance of International payments; Stabilise the value of currency by ensuring the liberalisation of foreign exchange transactions; Maintain an equilibrium of balance of international payments; and also Stabilise the value of currency by ensuring the liberalisation of foreign exchange transactions and of other foreign transactions by revitalising market functionality.
The proposed Bill attempts to expand Section 1 of the existing Act to incorporate three new provisions to make for clarity and to empower the Central Bank of Nigeria (CBN) to administer, control and manage all dealings and transactions in relation to foreign exchange matters.
The newly introduced clauses enable the CBN to determine the basic exchange rate of purchase and sale of foreign exchange.
Section 6 of the Bill introduces New Subsections (2) (4) and (5) which require authorised dealers to render returns to the CBN on sources of foreign exchange in excess of USD 10,000 and utilisation of same; and also obtain prior approval of the CBN when seeking to import foreign currency notes.
“The reason why the Bill should be amended is to resolve the acute foreign exchange shortage which has crippled Nigeria,” Enoh insists.
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