The Central Bank of Nigeria (CBN) has initiated some new rules that will enable beneficiaries of diaspora remittance and transfers receive money with ease. The previous policy censured dollar remittance, as cash could only be received in naira equivalent of the amount transferred. Also, withdrawal of foreign currency from a domiciliary account was previously restricted to money paid into such accounts by cash lodgements. Now, beneficiaries can receive their money in foreign currency.
The aim of the new policy is to boost dollar supply in the economy and achieve stability of the foreign exchange market. Dr. O.S. Nnaji, CBN Director, Trade and Exchange Department disclosed that the new move became possible due to the enhanced capacities of the apex bank to track transactions, check money laundering, and halt the adverse effect of dollarization in the economy. Mr. Godwin Emefiele, the CBN Governor revealed that the apex bank is targeting about $2 billion inflow monthly from the diaspora remittances.
The policy has recorded a significant impact on the black market as the exchange rate closed at N490/$1 on Tuesday. This represents a N10 gain when compared to the N500/$1 that it exchanged for on Monday. The trend continues as the US Dollar is being traded at N470/$1 in the parallel market now. Current exchange rate between the Dollar and the Naira is N482/$1. Aminu Gwadabe, president Association of Bureaux De Change Operators of Nigeria (ABCON), stated that the sharp appreciation of the Naira shows the effectiveness of the new CBN rule on the receipt of diaspora remittances.
Dr. Nnaji disclosed during a news interview that ‘when you have more inflows into the country at dollar value, it will help bring down the BDC rates. It will also help solidify or unify the rates in the market so we don’t have multiple currency rates. The monopoly of (banks) is broken and the policy will induce liquidity in the BDC subsector.
‘Nigeria is expected to close the year with over $20 billion diaspora remittances despite the pandemic in 2020. The beneficiary is free to collect his proceeds in foreign currency, in cash, and to trade it in the BDC sub-sector which will lead to true price equilibrium in the market,’ he added. Nigeria receives an average of $5 billion per quarter in foreign remittances but experienced an acute drop to $3.38 billion in the second quarter of the year.’
In 2017, the CBN adopted a monetary policy of raising MPR and tendering interest rates as high as 18% through its open market operation bills. The policy contributed to a $13.4 billion rise in capital in 2019. However, it dropped to a mere $332 million in the second quarter of 2020. Foreign investors have generally suspended the inflow of forex as yields have crashed. Restoring investor confidence and the flow of foreign exchange is presently a major challenge. Aminu Gwadebe, ABCON President blamed the crash of the naira on illegal activities such as hoarding, speculation, illegal crash evacuations through the nation’s border, use of the dollar for gratification, among others. The CBN Governor also added that ‘if we have more funds come in as remittances, our foreign reserves go up, and when that happens, the confidence in the Nigerian economy will go up.’
In view of the above, Nigeria needs to create a dynamic monetary policy that is intended to drive the economy, and make the direct exchange rate of stakeholders and other residents worth its while. The new remittance policy is a laudable feat by the CBN. It is however important that the Nigerian government and its agencies should be wary of policy reversals that may lead to a lack of confidence in the capital and real market economy.
Photo Credit: Marketwatchng