CBN’s Dollar for Naira promo raises hope for local currency

BY EMEKA EJERE

There are indications that the naira 4 dollar Scheme of the Central Bank of Nigeria (CBN) is showing signs of yielding the expected results, prompting expectations that the recent gains recorded by the local currencymay be sustained.
The apex bank had on Wednesday announced the indefinite extension of the promo deadline through a statement it issued to all deposit money banks (DMBs), International Money Transfer Operators (IMTO), and the general public.
Although the bank did not give a reason for its action, the move is expected to further boost the country’s foreign reserve and increase dollar circulation.
“Further to the CBN circular referenced TED/FEM/PUB/FPC/01/003 dated 05 March 2021 on the above subject matter, which was originally scheduled to end on 08 May 2021, we hereby announce the continuation of the scheme till further notice,” the memo said.
“All aspects of the operationalization of the programme remain the same. Please take note and ensure compliance.’’
To increase the inflows of diaspora remittances into the country, the bank had in March launched the scheme that pays naira to senders and recipients of international money transfers.
Since the crash of oil price last year amid COVID-19 pandemic, the naira has struggled against the dollar as the country has witnessed reduced foreign exchange.
First gain in two weeks at parallel,official markets
The naira gained significantly against the U.S. dollar at the unofficial market on Friday, data posted on abokiFX.com, a website that collates parallel market rates in Lagos showed.
The data showed that the naira closed at N483.00 at the black market, a 0.41 per cent appreciation on N485.00, which it stood since April 22.The last time the currency touched below N483.00 at the parallel market was on April 19 when it exchanged hands with the greenback at N482.00.
In a similar manner, the local unit strengthened marginally against the U.S dollar at the I&E window of the foreign exchange market on Friday as foreign exchange supply soared significantly.
Data posted on the FMDQ Security Exchange window where forex is officially traded showed that naira closed at N410.33 at the trading session of the NAFEX window on Friday, a performance representing N0.67 or 0.16 per cent appreciation from N411.00, the rate it traded in the previous session on Thursday.
This occurred as foreign exchange supply rose significantly. The forex turnover skyrocketed by 37.78 per cent, with $146.52 million recorded as against the $106.34 million posted in the previous session on Thursday.The naira saw an intraday high of N400.00 and a low of N437.41 before closing at N410.33 on Friday.The last time the currency (naira) closed at N410.00 and above was on April 26.
“The CBN naira for dollar policy is apt, but it’s too early to attribute any appreciation in naira value to it”, Christian Ike, an economist told our correspondent in a chat.
“It is also good to how sustainable the seeming effect will be before any conclusion is arrived at,”
A financial analyst, Dr. Silas Peters, commended the CBN for the recent policies aimed at boosting foreign exchange inflow into the country but urged the fiscal authorities to complement the apex bank’s efforts by creating enabling environment for foreign direct investments.
“The CBN is making commendable efforts, but it cannot do it alone without the support of fiscal authorities”, he said.
“Relying on diaspora remittances alone is not enough. We must pursue a boost in FDI for our foreign exchange crisis to be addressed. “
FX liquidity crisis
Rising dollar demand has been putting pressure on the naira, as importers with obligations scramble for hard currency, while providers of foreign exchange (foreign investors), have exited after the COVID-19 pandemic-triggered oil price crash.
Data from the CBN as at Monday (March 8) showed that Nigeria’s foreign exchange reserves declined 3.93 percent year-on-year to $34.91 billion by March 3, compared with $36.24 billion a year ago. Also, the data showed that the nation’s forex buffer declined 2.04 percent year-to-date from $35.64 billion recorded on January 4, 2021.
Little wonder the CBN in a bid to manage the exchange rate and improve liquidity in the foreign exchange market, has been introducing forex policies targeted at curtailing demand and improving liquidity.
Nigeria hopes to attract more remittances from its diaspora to boost foreign currency liquidity, with the ‘Naira for Dollar’ scheme being the latest policy introduced by the CBN to promote diaspora remittances. The incentive scheme enables the CBN to reward senders and recipients of International Money Transfers (IMT).
According to a CBN circular, the programme, which, until the extension, was to runs from March 8 till May 8, creates room for recipients to get 5 naira for every $1 they remit through licensed international money transfer operators (IMTO) and commercial banks.
The CBN governor Godwin Emefiele had explained that reducing the cost of sending remittances is a significant way to boost remittance inflows to Nigeria. According to him, the new policy is expected to enlarge the scope and scale of foreign exchange inflows into the country with a view to stabilizing the exchange rate and supporting accretion to external reserves.
The apex bank had taken the first bold step to boost foreign currency liquidity in December when it lifted rules that had restricted inflows in a new diaspora remittances policy.
The policy which took effect from December 4 (2020), allows diaspora remittances to be paid in cash in U.S. dollars or into a domiciliary (foreign-currency) account at market rates. In the past, remittances could be paid in naira and the CBN had restricted domiciliary account usage.
Nigeria is the world’s fifth-biggest destination for international remittances, with five million of her citizens living abroad sending money back to relatives, according to Western Union. PricewaterhouseCoopers estimated that diaspora flows into Nigeria totalled $23.63 billion in 2018, representing 6.1% of GDP.