Forex

Diaspora Remittance: Understanding ‘CBN Naira 4 Dollar’ Policy

Published

4 years ago

March 10, 2021

The new “Naira 4 Dollar” initiative was introduced because of the failure of the diaspora remittance policy announced in November 2020, when the apex bank adjusted its diaspora remittance policy to checkmate dollar-bank-transfer being carried out between diaspora remittance recipients and forex buyers.

The strategy then was to receive remittance in a domiciliary account and transfer it to operators in the parallel market or whoever was in need of it at a black market rate, and since withdrawing means you will be paid the equivalent in Naira at a bank rate of N362/$ before it was adjusted to N391/$, several diaspora remittance recipients stopped withdrawing their remittance inflow but transfer to forex dealer’ accounts.

The fact that people were not withdrawing means the dollars were not entering the economy, hence the forex scarcity that plunged Naira to N484 as of today on the black market.

In order to curb the situation, the CBN quickly adjusted its policy to allow people to receive their diaspora remittances in dollars with the hope – the estimated $21 billion per year inflow – would help stimulate productivity and fast track economic recovery.

However, the lockdown caused by COVID-19 is a global occurrence. Many Nigerians in the diaspora were unable to work and were only managing stimulus cheques if they were lucky enough to reside in US, Canada, Australia, Ireland, etc.

For the majority, they have to shut down their businesses and went into a survival mode. Therefore, the CBN strategy to flood the economy with diaspora remittances failed.

In a desperate move to lure them into the economy, especially sensing the nation could plunge back into recession due to weak crude oil production of 1.4 million barrels per day (below 2.2mbpd capacity), falling foreign reserves of $35 billion, weak revenue generation, high unemployment and escalating inflation rate, the apex bank was forced to launch Naira 4 Dollar initiative.

This is because Nigeria is an import-dependent/petrol-dollar economy, meaning it needs to sell crude oil to generate dollars and use the dollar to service its economy, import for consumption.

Here are what could happen if the strategy works

The economy will come alive as diaspora remittance is estimated at about $21 billion per year, it will augment the nation’s dwindling foreign reserves.
Economic productivity will improve and so will GDP growth
New job creation will surge and spending will improve
Internal revenue generation will improve due to import duty, VAT and other charges
Import-dependent businesses will come alive as they will have access to more dollars in a p2p kinda transaction.

Here is why the strategy may not really work

There is a partial lockdown in most developed nations where Nigeria remits the most.

While the central bank thinks it could lure Nigerians in the diaspora with N5 per US Dollar strategy, the plunge in Naira to N483/US Dollar, N675 to a British Pound and N580 to a Euro is enough to encourage, lure and attract anyone that has the money to send to do so. N5/US$ gift won’t make a huge difference if they don’t have it, to begin with. However, it could create a loophole for certain individuals to exploit the system.

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Samed Olukoya

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

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Naira

Naira Falls to N1,676.90/$1 at Official Market, Slides to N1,708.87/$1 at Alternative Window

Published

10 hours ago

November 5, 2024

Iyanuoluwa Martins

The Naira depreciated at the Nigerian Autonomous Foreign Exchange Market (NAFEM) by 0.61 percent and sold against the US Dollar at N1,676.90/$1 on Monday, November 4.

At the official market, the domestic currency recorded a N10.18 drop versus N1,666.72/$1, valued at the previous session on Friday.

Equally at the black market, the Naira lost N4.76 against the greenback to close at N1,708.87 to the US Dollar compared to N1,704.11/$1 it closed on Friday.

The outcomes came as the weak supply gripping the marker cross paths with high seasonal demand placing pressure on the local currency.

This occurred as supply dropped further at the session as turnover published on the FMDQ Group website stood at $79.47 million indicating that the session’s turnover fell by 15.7 per cent, indicating that there was a decrease of $14.75 million compared to $94.22 million published the previous day.

With the year coming to a close, there has been a higher demand for FX but with the Central Bank of Nigeria (CBN) limiting interventions, constraints have seen a volatile outcome for the local currency.

Equally, the domestic currency also witnessed losses against the British currency and the Euro in the week’s opening session.

On the Pound Sterling, the local currency made a loss of N3.38 to wrap the session at N2,160.63/£1 from N2,157.25/£1 that it sold at the previous session and against the Euro, the Nigerian currency closed at N1,816.40/€1 versus N1,814.79/€1, indicating an N1.61 depreciation.

The local currency also declined in its value against the British currency in the black market as it dropped by N9.63 to sell at N2,217.39/£1 compared with the preceding session’s N2,207.76/£1 and followed the same pattern against the Euro as it depreciated N10.73 to quote at N1,862.98/€1 versus the previous day’s rate of N1,852.25/€1.

The Naira, however, had a different trend against the Canadian Dollar as it appreciated by N1.66 to close at N1,222.33 per Canadian Dollar, compared to Friday’s N1,223.99 per CAD.

CBN’s limited capacity to sufficiently intervene across the market segments and suboptimal inflows from Foreign Portfolio Investors will continue to impact the trajectory of the local currency in coming weeks, analysts said.

Measures that don’t translate to more injection of FX into the pressured market will only provide temporary reprieve, they added.

Meanwhile, the CBN will soon begin to test run its automated FX platform to increase market confidence and reduce speculative trading.

Naira

Naira Appreciates to N1,666 Per Dollar at FX Market, N1,704.11 at Parallel Market

Published

3 days ago

November 2, 2024

Iyanuoluwa Martins

The Naira appreciated by 0.5 percent against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday following an N8.77 rise to close at N1,666.72/$1 compared with Thursday’s closing rate of N1,675.49/$1 despite worsening supply in the market.

The daily supply of FX as measured by secondary data from FMDQ Securities Exchange Limited indicated that turnover fell by $72.41 million or 43.5 per cent to $94.20 million from $166.61 million.

However, the local currency slid on the Pound Sterling and the Euro in the final session. For the British currency, the local currency depreciated by N10.10 and closed at N2,157.25/£1 from N2,147.15/£1 while it closed at the rate of N1,814.79/€1, a slump of N23.43 against N1,791.36/€1 against the Euro.

Meanwhile, the Naira rose further by N7.66 against the American in the parallel market segment to close at N1,704.11 to the US Dollar compared to N1,711.77/$1 it closed on Thursday.

Also, the domestic currency extended its gain against the British currency during the final session as the Naira made a further appreciation of N16 to trade at N2,207.76/£1 from N2,223.76/£1 that it sold at the previous session and against the Euro, it appreciated N14.82 to close at N1,852.25/€1 versus the previous day’s rate of N1,867.07/€1.

The local currency gained a marginal N1.62 to close at N1,233.99 per Canadian Dollar, compared to Thursday’s N1,235.61 per CAD.

The Central Bank of Nigeria (CBN) at the recently concluded World Bank/IMF meetings held in Washington, DC last week said the foreign exchange market will not depend on the apex bank’s intervention for supply and stability.

This is evidenced by the stop of sales of Dollars to the market as it plans to improve supply organically without its intervention from time to time while maintaining balance in the market.

“While you might see us intervene from time to time, we are trying to ensure the market is not dependent on the intervention of the central bank.

“I think that we are looking at conditions that market return as much as possible to improve supply organically without the Central Bank having to put in money all the time,” the CBN deputy governor on economic policy, Mr Mohammed Abdullahi, disclosed.

Naira

Naira Loses 2.7% on Dollar at NAFEX, Gains N6 to N1,711/$1 at Parallel Market

Published

4 days ago

November 1, 2024

Iyanuoluwa Martins

The Naira fell by 2.7 percent on the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEX) to exchange at N1,675.49/$1 on Thursday, October 311 as the local currency depreciated despite a slight increase in supply.

In the official market, the domestic currency lost N44.32 on the American currency in the official market versus N1,631.17/$1, which it closed in the previous session on Wednesday.

In a turn of fortune, the Naira rose N6.66 against the greenback in the parallel market segment to close at N1,711.77 to the US Dollar compared to N1,718.43/$1 it closed on Wednesday.

Data showed a rise in supply as the turnover published on the FMDQ Group website stood at $166.61 million indicating that the session’s turnover jumped by 29.2 per cent, indicating a rise of $37.63 million compared to $128.98 million that was published in the last trading session.

Equally, the Naira weakened its value against the Pound Sterling in the official market by N3.75 to sell at N2,147.15/£1 compared with the preceding session’s N2,143.40/£1.

It followed the same path against the Euro, depreciating N9.29 to quote at N1,791.36/€1 versus midweek’s closing rate of N1,782.07/€1.

In a different outcome in the black market, the domestic currency headed up against the British currency during the Thursday session as the Naira made an appreciation of N10.86 to wrap the session at N2,223.76/£1 from N2,234.62/£1 that it sold at the previous session.

However, the Naira followed a different pattern against the Euro as it depreciated N12.51 to close at N1,867.07/€1 versus the previous day’s rate of N1,854.56/€1.

The local currency gained a marginal 9 Kobo to close at N1,235.61 per Canadian Dollar, compared to Wednesday’s N1,235.70 per CAD.

Investors King reports that the Nigerian macro environment is placing pressure on the FX market with latest data showing that there is a high money supply in the system complemented by a wider government budget deficit.

The Central Bank of Nigeria (CBN) revealed that Nigeria’s money supply often known as M3 grew 62.8 percent in the last one year to N109 trillion from N66.9 trillion in September 2023.