Naira 4 Dollar Scheme: For The Price Of One

The Central Bank of Nigeria (CBN) has introduced a rebate of  ₦5 for every $1 (Naira 4 Dollar Scheme) of funds remitted to Nigeria, through the International Money Transfer Operators (IMTOs) in its new forex policy.

Brandnewsday understands that the Central Bank Governor, Godwin Emefiele made this known on Saturday during a virtual event organised by Fidelity Bank at its inaugural webinar on the impact of the new forex policy on diaspora investments.

The new policy took effect from Monday.

According to Mr Emefiele, efforts at driving remittance inflows into Nigeria would yield positive results as it continued to ensure formal banking channels offer cheaper, faster, and more convenient ways for remitters to send funds to beneficiaries.

The CBN governor said reducing the cost of sending remittances was a significant way to boost remittance inflows to Nigeria.

READ: CBN To Boost Diaspora Remittances Inflow Through ‘Naira 4 Dollar Scheme’

In general, he said, the new policy was expected to enlarge the scope and scale of foreign exchange inflows into the country with a view to stabilising the exchange rate and supporting accretion to external reserves. This development came as oil surged above $71 a barrel in Asian trading on Monday after Saudi Arabia said the world’s largest crude terminal was attacked, although output appeared to be unaffected after the missiles and drones were intercepted.

Naira 4 Dollar Scheme: For The Price Of One

Bloomberg reported that futures in London jumped as much as 2.6% at the open after rising 4.9% last week. The Saudis said that a storage tank at Ras Tanura on the country’s Gulf coast was attacked on Sunday by a drone from the sea. The terminal is capable of exporting roughly 6.5 million barrels a day — nearly 7% of oil demand — and as such one of the world’s most protected installations.

The attacks follow a recent escalation of hostilities in the Middle East region after Yemen’s Houthi rebels launched a series of attacks on Saudi Arabia.

Policy Implications

This policy holds a number of implications for Nigeria. First, both the rise in oil prices and the CBN’s remittance policy will bring about, in the short to medium term, a much needed if temporary rise in government revenues. Nigeria’s debt service to revenue ratio is already unhealthy, and any increase in the FG’s fiscal position is a welcome development.

A second implication, however, is that domestic petrol prices will also rise, as landing fuel costs follow oil price trends. The FG has removed subsidies for petrol, and this period will be the real test of its commitment to this policy. A rise in petrol prices will also have a knock-on effect on transport costs and food prices at a time where food inflation, at 20%, is already unbearable for most Nigerians.

READ: Fidelity Bank To Organize Diaspora Webinar Series… Reveals New Remittances Policy

Whilst the country seems to have only just limped out of its second recession in three years, insecurity and economic issues threaten wider national stability. In recent years, the government seems to have abdicated its fiscal policy role to the CBN, which has equally seen its monetary policy role expand to a development finance one as well as currency printing for the government.

These activities have left a gaping hole in the CBN’s balance sheet and the regulator is contemplating issuing long term promissory notes to the public to help take the exposure “off-balance sheet”. Another cause of concern is that falling oil revenues have pressured the external reserves, which threatens the country’s ability to fund imports.

In fact, Nigeria’s external reserves fell this week to $37.74 billion, its lowest level since the height of the COVID-19 induced lockdown in May 2020. The CBN is desperately trying various initiatives to stem this reserve erosion. Data indicates that remittances are down 61% y-o-y, which could be a result of myriad factors from the use of decentralised channels like cryptocurrencies, peer-to-peer exchanges and unfavourable CBN remittance policies to the economic difficulty caused by the ongoing pandemic.

This “Naira 4 Dollar” scheme appears to be designed to meet at least two goals. Firstly, to help attract US dollars from unofficial exchanges to be routed through official channels. This means it could discourage peer-to-peer exchanges and other forms of remittance like cryptocurrencies. However, incentivising the use of more formal channels through licenced IMTOs may not be sufficient motivation for many diasporans when the main prohibitive factor – expensive transfer charges persist.

Secondly, it appears to be a subtle devaluation of the Naira since more of the local currency will be exchanged for a limited amount of US dollars. Only time will tell if this initiative will succeed. We are not holding our breath.

Credits: SB Morgen Intelligence