The Central Bank of Nigeria (CBN) has issued a new directive requiring all Deposit Money Banks (DMBs) and International Money Transfer Operators (IMTOs) to settle diaspora remittances in Naira. This strategic move aims to enhance foreign exchange (FX) liquidity within the country and strengthen the Naira’s value.
CBN Governor, Mr. Olayemi Cardoso, emphasised that this decision aligns with the Monetary Policy Committee’s commitment to combat inflationary pressures through traditional methods. The bank believes that settling remittances in Naira will increase the flow of foreign currency into the country, which will help stabilize the Naira and curb inflation.
To facilitate the implementation of this new directive, the CBN has introduced measures to enable eligible IMTOs to access Naira liquidity through the CBN window, either directly or through their Authorized Dealer Banks (ADBs). This will provide IMTOs with the necessary liquidity to execute foreign exchange transactions seamlessly.
Compliance and Operational Framework
The CBN has established a comprehensive compliance regime to ensure the smooth operation of this initiative. Key features include:
- Same-Day Settlement: Transactions executed and confirmed before 12 noon on a trading day will be settled on the same day.
- Market-Based Pricing: Pricing for transactions will be based on prevailing NAFEM (Nigerian Autonomous Foreign Exchange Market) rates, ensuring transparency and fairness.
- Regulatory Reporting: All participants are required to submit daily regulatory returns to the CBN, including details on the sources of funds.
The CBN’s decision to mandate Naira settlement for diaspora remittances has the potential to significantly boost FX liquidity in Nigeria, thereby strengthening the Naira and stabilizing the exchange rate. However, concerns have been raised about the potential impact on remittance recipients who may prefer to receive funds in foreign currency. Additionally, the effectiveness of this policy in curbing inflation remains to be seen.
Stakeholder Reactions
The CBN has engaged in productive discussions with IMTOs, who have collectively committed to doubling remittance flows through formal channels in the short to medium term. This collaboration aims to address any bottlenecks and ensure the smooth implementation of the new directive.
The CBN’s move is a bold step towards addressing the challenges in the foreign exchange market and fostering a more stable economic environment. The success of this initiative will depend on effective implementation, continuous monitoring, and collaboration with stakeholders in the financial sector.
As Nigeria continues to grapple with inflationary pressures and exchange rate volatility, the CBN’s proactive approach demonstrates its commitment to finding innovative solutions to stabilize the economy and ensure sustainable growth. The impact of this new directive on the financial landscape will be closely watched by businesses, individuals, and policymakers alike.
