CBN scraps FX price verification portal: streamlining or uncertainty?

Iben Ejikeme Business 28/06/2024

Estimated reading time: 3 minutes

The Central Bank of Nigeria’s (CBN) decision to discontinue its Price Verification System (PVS) portal for importers, effective July 1st, 2024, has sparked mixed reactions from stakeholders in the Nigerian foreign exchange (FX) market. While some view it as a streamlining measure, others raise concerns about potential consequences for transparency and accountability.

The apex bank disclosed this information in a circular posted on its website on Wednesday adding that it took the decision given recent developments in the Nigerian Foreign Exchange Market.

The notice signed by the Acting Director of the Trade and Exchange Department, W. J. Kanya, was addressed to all authorised dealer banks, and the general public.

It was titled, “Discontinuation Of The Central Bank Of Nigeria Price Verification System Portal.”

The circular read, “We refer to the circular dated August 17, 2023, referenced TED/FEM/PUB/FPC/001/008 and titled “Go-Live Of The Central Bank Of Nigeria Price Verification System Portal” on the deployment of the Price Verification System.

“Given recent developments in the Nigerian Foreign Exchange Market, the CBN hereby discontinues the Price Verification System.

“Consequently, with effect from July 01, 2024, all applications for Form ‘M’ shall be validated without the Price Verification Report generated from the Price Verification Portal.

“For the avoidance of doubt, by this circular, the Price Verification Report is no longer a requirement for the completion of a Form ‘M’. Please note and be guided accordingly,” the notice concluded.

The PVS and its Purpose: Introduced in August 2023, the PVS portal aimed to curb over-invoicing, a practice where importers inflate the value of their imports to access more foreign exchange. The system required importers to obtain a Price Verification Report from the portal before accessing FX for their imports.

Reasons for Discontinuation: The CBN has not explicitly stated the reasons behind scrapping the PVS. However, the circular announcing the change cites “recent developments in the Nigerian Foreign Exchange Market” as the impetus for this decision. Speculation suggests the CBN might be confident that the FX market has stabilized enough to make the PVS redundant.

Potential Benefits: Streamlining the FX application process for importers is a potential benefit. Removing the PVS requirement could expedite access to FX and potentially reduce administrative burdens on businesses. This, in turn, could stimulate import activity and economic growth.

Lingering Concerns: Critics of the decision worry that scrapping the PVS might create an environment conducive to a resurgence of over-invoicing. Without the verification process, some fear importers could manipulate invoice values to access more FX for purposes unrelated to their imports. This could put pressure on Nigeria’s FX reserves and potentially lead to currency devaluation.

Transparency and Accountability: The PVS, despite its limitations, offered a degree of transparency into import pricing. Its removal raises concerns about the ability to monitor potential FX malpractices.

The Road Ahead: The impact of the CBN’s decision will depend on several factors. The effectiveness of alternative measures to curb over-invoicing and the overall stability of the FX market will be crucial in determining the success of this policy shift.

What to Watch: Businesses and analysts will be closely monitoring the FX market in the coming months to assess the impact of the PVS’s removal. Transparency regarding the CBN’s rationale for this decision and potential follow-up measures to ensure responsible FX practices will be key in the coming weeks.

Tags: CBN, Central Bank of Nigeria, Foreign Exchange Market, FX, Nigeria, PVS, Price Verification System, Nigerian Stock Exchange.