Paying Remittances In Naira Will Worsen FX Crisis - Experts - INDEPENDENT
The fresh directive by the Central Bank of Nigeria (CBN) to International Money Transfer Operators (IMTOs) to henceforth pay inbound remittances in naira has been described as one that will further worsen the crisis in the foreign exchange market.
The CBN said payments are now to be made in naira in respect of inbound transfers of remittance services from outside the country.
Experts who spoke with Daily Independent argue that the CBN should face options were foreign exchange is made available in the foreign exchange market rather than what will discourage it.
The CBN in a circular by the Director, Financial Markets Department, Dr. Omolara Omotunde, with reference no FMD/ DIR/PUB/CIR/001/012 and addressed to ‘All Authorised Dealers’, cleared the way for the banks to sell foreign exchange at rates determined by them, as part of the strategy by the apex bank to stabilise the naira.
Consequent upon the removal of the caps on the spread on interbank foreign exchange transactions, the banks are now free to establish their own prices based on supply and demand.
This allows the market to determine what it considers a fair rate for foreign currencies, particularly the US dollar.
The banks now have more flexibility to sell FX to anyone they choose, and this change could result in a quicker and more convenient access to foreign currency for businesses and individuals.
The CBN said authorised dealers are to continue to conduct their foreign exchange transactions on a ‘willing buyer and willing seller’ basis and are to “strictly adhere to high ethical standards in their dealings in the foreign exchange markets. This includes but not limited to adopting appropriate price disclosures and transparency for transactions”.
However, the CBN is demanding transparency from the banks, requiring them to clearly display their prices, refrain from deceiving customers, and report all transactions to it (CBN).
The CBN expects this new approach to promote fairness and efficiency in the FX market, eliminate artificial distortions and ensure that everyone can access FX at a reasonable price.
It was gathered that the apex bank also intends to encourage greater foreign investment by simplifying the process of buying and selling FX, attract more foreign investors with a view to stimulating the national economy and discouraging the use of the black market.
With the banks determining their own prices, customers may find better deals on FX compared to the previous system while customers can compare the prices offered by different banks as prices are set by the market.
Investigations by Daily Independent revealed that International Money Transfer Operators (IMTOs) have started complying with the January 31, 2024, CBN directive stopping them from dollar transfers to Nigeria. These include WorldRemit and Western Union.
The Head, Financial Institutions Ratings at Agusto, Mr. Ayokunle Olubunmi, said the CBN’s directive removing the caps on the spread on interbank foreign exchange transactions is a good move but stressed that the decision to allow IMTOs determine the value of the naira and also pay remittances in naira may likely be counter-productive.
He said, “Since the desire of the bank is to see forex in the market and encourage those hoarding them to push them out, the idea of receiving diaspora remittances in naira will discourage the desired availability of forex in the market.
“The most important thing for now is even the supply. The question is, is there even enough dollars to sell?
“What people should realise is that there are people who have dollars to sell and because the rate is not attractive, they are not selling but the good thing about the directive is that once you can get anybody to agree on a rate, you sell.
“The thinking of the CBN is that if you can incentivise people to bring the dollars that they have, then the prices will drop.
“Will this happen? I don’t think the dollars they will be willing to sell will bring succour to the market and bring down the value of the dollar”.
On paying remittances in naira, Olubunmi said, “I was shocked when I saw the circular; I am even surprised why they came out with that. Let’s wait and see what will happen with this”.
Stephen Iloba, an economist, said these two circulars are demonstration of the leadership of the CBN desires to find a quick fix to the devaluation of the naira.
He said, “The Cardoso’s leadership at the CBN should be aware that there can never be a quick fix to a problem that has its roots in many years of inappropriate policies by the bank and lack of action by the fiscal authority.
“I can see the enthusiasm of Cardoso and his team but the move to pay remittances in naira will not encourage the recovery of the naira. Most Nigerians in diaspora may channel their funds to sectors that will not have direct impact on the economy like buying houses in countries like Dubai and other places instead of sending their money to Nigeria.”
While addressing Senate Joint Committee on Banking, Insurance and other Financial Institutions, Finance and National Planning, last week, Cardoso said the nation’s “foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira.
“Factors contributing to this situation include speculative forex demand, inadequate forex supply, increased capital outflows, and excess liquidity.
“The shift to a market-driven exchange rate was intended to create a stable macroeconomic environment and discourage currency hoarding.
“However, short-term volatilities are attributed to arbitrage and speculation.
“To address exchange rate volatility, a comprehensive strategy has been initiated to enhance liquidity in the FX markets.
“This includes unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs and IMTOs, enforcing the Net Open Position limit, Open Market Operations and adjusting the remunerable Standing Deposit Facility cap among others.
“These measures, aimed at ensuring a more market-oriented mechanism for exchange rate determination, will boost foreign exchange inflows, stabilise the exchange rate, and minimise its pass-through to domestic inflation.”
He said the measures already put in place by the bank have started yielding early results with “significant interest from foreign portfolio investors (FPIs) that have already begun to supply the much-needed foreign exchange to the eco