NAIRA4DOLLAR SCHEME MAY HAVE BOOSTED FOREIGN EXCHANGE INFLOW
There are indications that the Central Bank of Nigeria’s Naira4Dollar scheme may have gained traction as authorised dealers hinted of significant increase in volume of foreign exchange inflows by diaspora remittances through the banks. Specifically, they put weekly average inflow at USD50 Million, up from about USD 20 Million in the corresponding season of last year. Though still a pilot scheme, at USD50 Million a week the CBN could be attracting about USD2.6 Billion per annum. This will be a quantum leap from the estimated USD1.1 Billion received in 2020 from diaspora remittances, though much lower than the $3.2 Billion received in 2019.
According to the CBN, the scheme is “an effort to sustain the encouraging increase in inflows of diaspora remittances into the country”, The Central Bank of Nigeria (CBN), in a bid to manage the exchange rate and improve liquidity in the foreign exchange market, has been introducing forex policies that it expects will curtail demand and improve forex liquidity. The ‘Naira for Dollar’ scheme is the latest policy introduced by the CBN to promote diaspora remittances.
The scheme offers recipients of Dollar remittances through CBN’s International Money Transfer Organisations (IMTOs) N5 for every $1 received as remittance inflow. Despite the return to growth, albeit tepid, a dark cloud of uncertainty continues to hover over the minds of millions of Nigerians as the broader economy remains in a fragile state. A key factor that remains a bellwether for the economy is the exchange rate, which is always perfectly correlated with the price of oil and the resultant Dollar related export earnings.
Economy analysts have expressed the view that the scheme which is scheduled to run between March and June 2021 should be consolidated into an encompassing foreign exchange reform geared towards diversifying foreign exchange earnings of the country away from the oil export. If this is properly implemented the Central Bank of Nigeria, CBN, according to the analysts, would have freed itself from the burden of providing liquidity to the foreign exchange market.
At the backdrop of this scheme, the CBN believes remittances paid in Dollars and sold on the streets will improve liquidity in the retail end, thus strengthening the exchange rate. Already the commercial banks are enjoying floats and liquidity in their domiciliary accounts as they now automatically open domiciliary bank accounts for beneficiaries of diaspora remittances in Nigeria under the CBN’s Naira4Dollar scheme. Commercial banks do not need the permission of the recipients to open a domiciliary account, a huge departure from the CBN’s strict policy documentation requirement for opening domiciliary accounts.
Chairman of the Association of Bureau De Change Operators in Nigeria, Aminu Gwadebe, said, “On the Naira for Dollar policy, though a step in the right direction, it’s not totally comprehensive to address the constraints in the remittance space in the economy. The major challenge of the policy is the fixed exchange rate versus the parallel market rate in the market. Also, the involvement of high-level institutions like banks with heavy infrastructural costs makes it usually very costly. ‘’Thirdly, factors like the prevalence of unregulated channels is a major setback to most policy initiatives. “This new measure will help to make the process of sending remittances through formal bank channels cheaper and more convenient for Nigerians in the diaspora, hoping this will help boost liquidity in the retail end of the forex market.’’