FG contemplates converting $30bn in domestic deposits to naira as part of Operation Rescue Naira

The Federal Government appears to be considering a policy that would convert foreign currencies in citizens’ domiciliary accounts to naira in order to stabilize the currency, which earlier this week saw its worst performance in history.

If the plan is implemented, the government will order the Central Bank of Nigeria to set a rate for converting foreign currencies that are sitting idle in the domiciliary accounts of individuals and corporate organizations to naira.

Top Presidency sources claim that the goal of the action is to stabilize the naira, which on Monday saw its largest decline on the official Nigerian Foreign Exchange Market, falling by 24% to close at N1,348 per dollar.

According to one of our sources close to the presidency, the Federal Government will not stand by and watch while certain people hoard foreign currencies at the expense of the naira. The source further stated that the problem of forex scarcity and the naira’s decline was an elite issue.

“The issue of dollar scarcity is an elite problem,” the source claimed. You’ll observe that this occurs at the end and start of each new month. The exchange rate increases at that point. Governors always receive their allocations from the Federal Account Allocation Committee (FAAC) at that time. We are unsure of the connection, if any exists.

“Domiciliary accounts are not opened by people to hold dollars in any country in the world. It is unique to Nigeria. We need to take care of this. In addition to being a political issue, this one also has an economic component that needs to be addressed. Sincere requests prompted by business activity are unable to exert such intense pressure. Dollar demands should have decreased by June, the month Dangote Refinery is expected to open.

“Neither individuals nor businesses should maintain a domiciliary account if they do not have admissible foreign currency earnings, such as a salary or foreign exchange revenue. Even if you receive foreign exchange income from your job, the banks ought to instantly convert it to local currency as soon as it reaches your account, crediting your local currency account with the appropriate amount.

There are currently over $30 billion in individual domiciliary accounts in Nigeria. The CBN account contains it. The documents are in the file. That is incorrect. We will have to deal with these problems. Dollars are not intended to remain in people’s accounts in other nations.

The President Bola Tinubu administration, which stated in September 2023 that it was seeking to attract funds held in domiciliary accounts and those held by Nigerians abroad into massive investments in various sectors of the economy, will be making a significant policy shift if this is put into action.

This information was released during a press conference in Abuja by Mr. Wale Edun, the Coordinating Minister of the Economy and Minister of Finance.

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He stated that his team was working to create the necessary conditions to draw these funds into the local economy. He claimed that Nigerians have enormous amounts of money in their domiciliary accounts and large sums they own overseas that they can use to boost the economy.

According to Edun, Nigerians living abroad should also be heavily involved in the new initiative to raise the country’s economic growth rate through resource management and productivity.

“What we can see is that there are really quite substantial sources of foreign exchange in Nigeria,” the minister had stated.

“There is a lot of cash outside the system that, if brought in, would increase reserves, the amount of dollars in circulation, and other things.

“If you offer incentives to people, they will use the funds in domiciliary accounts to invest in Nigeria.”

Nigerians possess substantial foreign exchange holdings in foreign banks and financial institutions.

As they are doing now, we must create the conditions for those funds to return home and choose to invest in the Nigerian economy as opposed to those of other countries.

“You are investing in a foreign economy when you deposit money in a bank overseas. Lastly, the Diaspora is a significant source of funding for us.

We must work hard to target Nigerians who are employed abroad and who, naturally, want to maintain a presence in the country. One way to do this is to encourage them to save money in Nigeria by, for example, enhancing payment methods.

“We are committed to implementing the appropriate frameworks and incentives to bring Nigerian funds outside the system and into the financial and economic system so that jobs can be created for Nigerians,” the statement reads. “There is a lot of hope.”

Nonetheless, we were informed by a branch manager of a Tier-1 bank in Lagos that “it’s too early to talk about compliance with the CBN directive by banks.” He spoke on condition of anonymity because he was not authorized to speak on the subject. By next week, when we should have a better idea of what’s going on, perhaps we will have a better direction. My bank’s compliance is currently unknown to me; our treasury department will be the source of that information. However, customers came into my branch today (Friday) to deposit money into their domiciliary accounts, which is not how things used to be.

“In my opinion, it will be difficult for the government to seize funds from domiciliary accounts. How much will these funds be worth in naira? The CBN directive is causing the exchange rate to gradually decline.

In the meantime, Olayemi Cardoso, the governor of the Central Bank of Nigeria, Wale Edun, the minister of finance and coordination minister for the economy, Ola Olukoyede, the chairman of the Economic and Financial Crimes Commission, and others met on Friday in Abuja to discuss ways to stabilize the naira and improve the effectiveness of the financial system.

“The meeting highlighted our continuous efforts in aligning monetary and fiscal policies, underscored by a commitment to the rule of law,” the Federal Ministry of Finance’s official X posted.

“Reaffirming the commission’s support for these initiatives, emphasising his dedication to enhancing (the) integrity of financial regulations,” was the quote provided by the chairman of the EFCC.

Fintech and banks cannot use IMTO services.

Banks and fintechs are not allowed to conduct international money transfer operations, according to the Central Bank of Nigeria.

“All banks are prohibited from operating International Money Transfer services, but they may act as agents,” the apex bank stated in its “Guidelines on International Money Transfer Services in Nigeria.”

Additionally, financial technology firms are prohibited from obtaining IMTO approval.

The purpose of the CBN’s new guidelines is to direct IMTOs in conducting money remittances in accordance with the CBN-established regulatory framework.

Discussions concerning the future of fintech companies with IMTO licenses from the CBN, such as Flutterwave, Interswitch, Paga, and others, have been sparked by this new guideline.

Additionally, the minimum share capital requirement for IMTO operators was raised to $1 million by the apex bank. “Any IMTO intending to operate in Nigeria shall submit its application to the Director, Trade and Exchange Department with the following documents:” the bank said, referring to the listing requirement for operators. A non-refundable application fee of N10,000,000, or any additional sum that the bank may specify at any time, must be paid by bank draft or electronic transfer to the CBN.

“Accreditation to conduct business in other countries or agency contracts (for all IMTOs). For international IMTOs, the minimum share capital is $1 million; for domestic IMTOs, it is the equivalent.

Naira starts getting better

The value of the naira relative to the dollar has decreased over the last three days; on Friday, it closed the week at N1,435.53/$, down from its all-time high of N1,482.57/$ on Tuesday at the official window.

This represents a 3.17% appreciation for the naira, which had a rough start to the week. After the FMDQ Security Exchange reviewed the exchange rates calculation, the naira started its worst week of trading on the official window on Monday at N1,348/$.

“This revision aims to address recent fluctuations and challenges encountered in the Nigerian Foreign Exchange (‘FX’) Market,” FMDQ stated in a notice to the market.

“These revisions are focused on enhancing the accuracy and reliability of the NAFEX and NAFEM rates’ determination process, with a focus on data availability and integrity involving a rigorous data validation process, including tolerance checks, which shall be applied by FMDQ Exchange, subject to internal policies and procedures,” the explanation continued. This would guarantee that the new measures would accurately reflect market conditions.

Additionally, the CBN requested transparency from authorized dealers in the financial market last week.

Deliberate attempts to manipulate the market by reporting false transaction details are considered market manipulation and will not be allowed going forward, according to the statement.

The difference between the parallel and official markets has narrowed significantly since Monday. Bureau de Change operators reported that there was still demand for the dollar on the black market, with the naira trading at N1,420/$ on Friday in the parallel market.

One operator said, “I will buy from you at N1,400/$ and sell to you at N1,420/$,” not wanting his name to appear in print.

Malam Ibrahim, an additional operator in Abuja, clarified that wealthy Nigerians were swarming the market to purchase dollars to hoard for profit, mentioning that his rate was approximately N1,470/$.

“The government knows the right things to do if it wants to help the masses in this country,” he declared. Nothing has changed, not even with the CBN’s order to banks to release more dollars.

“The issue is that you won’t receive anything from any bank, no matter where you go. Before they release $10,000 that you have requested, you must pay bribes.

“I can assure you that as long as people continue to purchase and accumulate more dollars, the naira will continue to decline. How much do you think I will sell it for, or do you think I will sell it for less? I bought a dollar today for N1,470. The naira will start plunging once more by Monday or Tuesday, I’m positive of it.

“Keep in mind that we are just frontiers for those who contribute a small percentage of their profits. There is no dollar production in the nation; the only source is provided by the government via the CBN. I can confirm that our politicians and other notable individuals maintain their Bureau de Change operations in order to keep their money out of the banks.

“Only the wealthy engage in dollar trading; where can the impoverished obtain dollars to fund their accounts?” he continued. These folks are well-versed in the industry. They even keep up with market trends more closely than journalists do. To keep an eye on the market, they drive up in their cars, buy $5,000, and then come back a few hours later to sell it. We also have foreign travelers who require dollars abroad, as well as parents whose children attend school overseas.

“Even though the naira appreciated on Thursday, people are still swarming to exchange their dollars for dollars today (Friday).” How then do you think the nation will improve? Some just want to act in their own self-interest rather than for the benefit of the nation as a whole.

However, due to the CBN’s policy direction, Nigerians have ceased purchasing dollars to hoard, according to Aminu Gwadebe, President of the Association of Bureau De Change of Nigeria.

He explained to us, “There has been some relief from the demand pressures, but it was previously the rational behavior. Previously, consumers were buying because they didn’t trust the CBN.

The apex bank on Wednesday instructed Deposit Money Banks to sell their excess dollar stock by February 1, 2024, in an effort to increase liquidity in the foreign exchange market. According to some bank officials, this week’s foreign exchange market saw a slight increase in the supply of dollars due to the directive.

In addition to disclosing this in a fresh circular that was made public on Wednesday, the CBN cautioned lenders against accumulating surplus foreign exchange for financial gain.

Officials say the central bank thinks some commercial banks maintain long-term foreign exchange positions in order to take advantage of the unpredictable fluctuations in exchange rates.

A new set of guidelines intended to lower the risks connected to these practices is introduced in the circular.

The CBN expressed concerns about the growing trend of banks holding sizable foreign currency positions in the circular titled “Harmonization of Reporting Requirements on Foreign Currency Exposures of Banks.”

The CBN had issued a circular just 48 hours prior, cautioning banks and foreign exchange dealers not to report fictitious exchange rates, among other things.