The Central Bank of Nigeria (CBN) recently rolled out a more liberal foreign exchange policy on Diaspora remittances. Entitled “Amendment to Procedures for Receipt of Diaspora Remittances,” the new policy stipulates that recipients of forex remittances now have the option of receiving such funds in foreign currency cash (US Dollars) or into their ordinary domiciliary account.
The CBN said in a statement that “these changes are necessary to deepen the foreign exchange market, provide more liquidity and create more transparency in the administration of Diaspora remittances into Nigeria.”
The apex bank’s new policy is meant to address the difficulties experienced by Nigerians in the Diaspora when they send money to their family members or business associates. As a result of the difficulties, many of such remittances are being sent through risky and unofficial agents who may engage in round tripping and money laundering. Most of those remittances are not captured as forex inflow by the CBN. Also, the new policy replaces a policy that has put recipients of forex in a very difficult position. In the recent past, domiciliary account owners who received funds through electronic transfer could only utilise those funds by transferring to other beneficiaries. However, under the new arrangement, recipients of forex through Moneygram, Western Union or bank transfers could withdraw cash across the counter in their banks.
We commend the CBN for taking this pragmatic step to address a serious bottleneck in its exchange rate policy. If Nigerians receive cash at their banks, forex speculation would reduce to some extent. The high cost of the dollar has been as a result of its scarcity. Though the official exchange rate has been about N380 to $1, in the Black market, a dollar has been sold for as high as N470 or N480, while speculators projected that in the next few weeks, the exchange rate could collapse again to about N500 to $1. To allow this obnoxious system to endure would lead to damage to the economy and serious frustration among Nigerians.
Such exchange rate is directly responsible for hyper-inflation as prices of consumer goods have skyrocketed beyond redemption. The corollary to inflation is the reduction in the country’s Gross Domestic Product (GDP) and the spread of poverty.
The CBN’s new policy should encourage Nigerians in the Diaspora to send remittances to Nigeria through official channels without the fear of being swindled. Other countries benefit from such remittances. For instance, the Indian economy is helped by remittances by Indians in the Diaspora, especially, those in the United States, United Kingdom, Canada and other developed countries. China’s economy, also, benefits enormously from remittances from Chinese in the Diaspora, as it is almost compulsory for Chinese who do business or work in other parts of the world to remit a substantial part of their earnings to their home country. With an estimated 15 million Nigerians in the Diaspora, Nigeria could join the league of countries whose economy would leap forward as a result of Diaspora remittances.
No doubt, if properly managed, Diaspora remittances would make a positive impact on the economy. For instance, the Diaspora remittances in 2017 were put at $22.0 billion, and for 2018, it rose to $23.63 billion. The inflow represented about 6.1 per cent of Nigeria’s GDP, and a year-on-year increase of 14 per cent. Also, the 2018 remittances were about 85 per cent of Nigeria’s budget for that year; and, it was 11 times more than the official Foreign Direct Investment (FDI) inflow. These indicators point to the fact that there is a great potential for it to increase if there is incentive for these funds to be received in dollars through the official banking system.
We encourage the apex bank to put in place measures that would strengthen the Naira and reduce unofficial and bottomless devaluation of the Naira. The devaluation, apart from leading to inflation, discourages Nigerians from maintaining savings account in the bank. The CBN should put in place measures that would boost the confidence of the people in Nigeria’s monetary system.
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