The Central Bank of Nigeria (CBN) has sent shockwaves through the remittance sector, mandating that all international money transfers received through official channels be paid out solely in naira. This policy shift, detailed in a circular dated January 31, 2024, is a bold attempt to address the nation's persistent foreign exchange (FX) liquidity woes by channeling incoming dollars into the official market.
What's Changing:
Say goodbye to dollar payouts: Major international money transfer operators (IMTOs) like Western Union, MoneyGram, and Ria must now disburse all inbound transfers in naira, either directly to bank accounts or in cash for amounts below $200 equivalent.
CBN tightens the reins: This move follows previous restrictions imposed by the CBN, including a ban on outbound transfers through IMTOs and limitations on international money transfer services offered by banks and fintech companies.
The Rationale:
Boosting FX reserves: The CBN hopes to mop up dollars circulating outside official channels and increase FX liquidity in the formal market. This, in turn, aims to stabilize the naira and curb foreign currency speculation and hoarding.
But is it smooth sailing?
Access blues: Analysts raise concerns about the potential impact on Nigerians in the diaspora, who might be discouraged from sending remittances due to the forced conversion at official rates, often lower than the more attractive parallel market rates. This could negatively impact remittance inflows, a crucial source of foreign exchange for the Nigerian economy.
Market jitters: The policy shift has sparked mixed reactions. While some see it as a necessary step to address the FX crisis, others fear it could further restrict access to dollars and exacerbate market uncertainties.
Governor's reassurances:
CBN Governor Yemi Cardoso downplays concerns, highlighting a recent $1 billion boost in FX market liquidity attributed to increased interest from foreign investors. However, lingering doubts persist about the long-term effectiveness and potential unintended consequences of this policy shift.
The bottom line:
Nigeria's move to mandate naira payouts for international money transfers is a bold and controversial step. While its success in achieving the desired FX liquidity boost remains to be seen, the potential impact on remittance flows and access to dollars for Nigerians abroad raises concerns. Only time will tell if this policy change delivers the intended results or creates unintended complications in the already volatile FX market.
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