According to the World Bank, remittances into Nigeria from abroad equal more than $20.0 billion a year. Recipients of diaspora remittances sent through the CBN’s International Money Transfer Operators (IMTOs) can now get N5 for every $1 in remittance inflow.
In our view, a N5.0 premium for each dollar deposit from remittances results in a deposit expense of 1.2%, less expensive compared to the stop rate on OMO auctions to FPIs, which is intended to accomplish the same goal. With $34.7bn in dollar reserves (as of March 12th), the CBN needs at least $6.0bn in foreign reserves to be comfortable enough in increasing the dollar.
This, if the scheme succeeds, the strategy brings about the much-needed convergence of rates in the currency market. The downside, though, is the parallel market, where the currency continues to trade at a significant premium to the official rate.
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