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

Demand Pressure Weakens Naira At Official FX Market

Published

16 hours ago

October 3, 2024

Iyanuoluwa Martins

The Naira fell 8.3 percent against the US Dollar at the official market, the Nigerian Autonomous Foreign Exchange Market (NAFEM), as the local currency exchanged for the US Dollar at N1,669.15/$1 on Tuesday, October 2.

This meant the local currency slid by N127.21 from N1,541.94/$1 it closed at the previous session on Monday.

The official market was closed on Tuesday for the country’s 64th Independence Day.

As the fourth quarter commences, demand for FX has surged but recent efforts to bring some stability to the market through a series of auctions held by the Central Bank of Nigeria (CBN) for official dealers and Bureau de Change (BDCs) have not been able to tackle high seasonal demand.

Secondary data showed that there was a decrease in daily supply as the midweek turnover published on the FMDQ Group website stood at $176.45 million, indicating that the session’s turnover dipped by 2.9 percent or $5.41 million compared to $181.86 million published in the last trading session.

The local currency was flat against the Pound Sterling and the Euro as it wrapped the session at N2,143.65/£1 and N1,789.71/€1, respectively.

At the black market, the Naira was relatively flat against the Dollar as it retained the recent trading value of N1,656.

In a different outcome, it pulled a N3 gain on the Pound Sterling at the segment to sell at N2,158/£1 from N2,161/€1 and also added N3 on the Euro to wrap the midweek session at N1,844/€1 from N1,847/€1.

The Naira weakened on the Canadian Dollar by N5 to end the day at N1,220/CAD from N1,215/CAD quoted on Tuesday.

Naira

Naira Steady on Dollar, Gains on Pounds, Others as Nigeria Marks Independence

Published

1 day ago

October 2, 2024

Iyanuoluwa Martins

The Naira was steady against the Dollar on Tuesday, October 1, as it traded at N1,656 per Dollar at the unofficial foreign exchange (FX) market as the country marked its 64th Independence Day celebration.

It also gained against the British Pound Sterling, Euros, and Canadian Dollar.

The Naira rose by N8 on the English currency to sell at N2,161 per Pound from N2,169 and also rose N8 on the European currency to go from N1,855 in the recent day to N1,847 while it appreciated N13 on the Canadian Dollar to close at N1,215 from N1,228 on Tuesday.

The local currency which has faced volatility in recent months got relative ease after the Central Bank of Nigeria (CBN) sold a fresh batch of FX to authorised Bureau De Change (BDC) traders last week.

Throughout September, the CBN sold $20,000 twice to BDC operators to help meet the rising demand for foreign currency. On September 6, 2024, the CBN sold dollars to the BDCs at a rate of N1,580 per Dollar, and on September 25, 2024, at a rate of N1,590.

This intervention was aimed at reducing the pressure in the FX market and ensuring adequate liquidity for smaller traders. So the move saw demand spread away from the official channels and in turn, eased the value of the local currency.

At the Nigerian Autonomous Foreign Exchange Market (NAFEM), the domestic currency closed the month of September at N1,541.94 to the Dollar. It didn’t trade on Tuesday due to the holiday.

Upon resumption on Wednesday, the Naira could depreciate as pressure from Q4 seasonal demands could pile on it.

However, this could be prevented by external reserve buffers which have seen sharp increases in the last nine months.

According to the Central Bank of Nigeria (CBN), the country’s external reserves surged by 15.26% as of September 27, 2024, amounting to a $5.04 billion rise.

This development has pushed Nigeria’s total foreign currency reserves to $38.06 billion, up from $33.02 billion recorded at the beginning of the year.

Naira

Naira Gains 2.29% Against Dollar as Forex Liquidity Declines

Published

3 days ago

September 30, 2024

Yetunde Olugbenga

The Naira gained 2.29% or N35.32 against the dollar to N1,540.78 per dollar from N1,576.10 reported on Thursday.

On a week-on-week basis, the Nigerian Naira gained 1% according to the Nigerian Autonomous Foreign Exchange Market (NAFEM) data.

On Friday, the dollar supplied by willing buyers and sellers declined by 36.44 percent from $334.05 million on Thursday to $212.31 million at the NAFEM window.

Breaking down foreign currency supply for last week, the supply of dollars rose by 111.9%, from $100.21 million on Monday to $212.31 million on Friday.

It was noted that in the parallel market, also known as the black market, the Naira depreciated by N5 per dollar, from N1,695 on Thursday to N1,700 on Friday.

Moreover, during the week, the Naira fell by 2.1%, losing N35 compared to the N1,665 traded on Monday.

According to a statement signed by the Acting Director of the Trade and Exchange Department of the Central Bank of Nigeria (CBN), W. J. Kenya, the CBN sold $60 million to commercial banks and provided dollars to Bureau De Change (BDC) operators at a rate of N1,590 per dollar to stabilise the foreign exchange market and improve liquidity.

It was also gathered that eligible BDCs could purchase up to $20,000 to meet the growing demand for invisible transactions, which include personal travel allowances, medical bills, and educational expenses.

However, BDC operators interested in the intervention are required to sell dollars to end-users at no more than a one percent margin above the CBN’s purchase rate, and they must deposit the required Naira equivalent in the CBN’s designated accounts while submitting the necessary documentation at specific branches located in Abuja, Awka, Kano, and Lagos.

“Our goal is to maintain stability in the foreign exchange market and ensure that eligible end-users can meet their transaction needs,” Kenya stated.

“This move is to ensure adequate liquidity and meet the growing demand for invisible transactions in the market,” the statement read.