Home Politics ANALYSIS: Key steps Nigeria took last week to save naira

ANALYSIS: Key steps Nigeria took last week to save naira

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Nigeria’s naira has on several occasions in recent weeks tumbled across both the official and unofficial markets amidst an increased forex demand and a significant spike in the prices of goods and services across the country.

The local currency traded at an average of N1500 and above mark at the spot market last week, closing the week on a negative note at N1,665.50/$1 last Friday — the lowest the currency has ever recorded at the segment according to data posted by FMDQ.

Similarly, amidst speculations and uncertainties about supply constraints in the forex markets, the naira extended its depreciation run at the parallel market last week, creating apprehension across the different sectors of the economy. At the segment, the currency traded at a record low of N1,700 and above mark amid increased demand and market uncertainties.

This disturbing trend prompted the Nigerian government to undertake some major measures and reforms in an effort to safeguard the country’s foreign exchange market and combat speculative activities.

FIRS

The move by the government seems to be yielding the desired outcome across the unauthorised forex market since Saturday, as the naira appreciated slightly by the weekend.

Market data posted over the weekend indicated that the dollar was exchanged at the parallel market at N1,500 to a dollar on Sunday as against N1,720 and above it traded last Friday.

Restriction on digital assets platforms

In an effort to curb naira depreciation against the dollar, the federal government last week, among several other measures, blocked the online platforms of Binance and other crypto firms to avert continuous manipulation of the forex market and halt illicit movement of funds.

Apart from Binance, other platforms such as Forextime, OctaFX, Crypto, FXTM, Coinbase, Kraken, among others, were equally blocked.

Earlier on Tuesday, the office of the National Security Adviser directed law enforcement agencies to take firm measures against anyone engaged in foreign exchange market speculation.

 

The government also announced that it was planning to raise $10 billion to improve liquidity in the foreign exchange market.

BDCs

In an aggressive push to tackle currency racketeering, the Economic and Financial Crimes Commission (EFCC) last Monday raided and arrested some Bureau de Change (BDCs) operators across different regions in the country.

The raids which were carried out simultaneously, PREMIUM TIMES understands, were executed to frustrate currency speculators and others considered to be undermining the Nigerian economy.

Last Wednesday, operatives of the Enugu Zonal Command EFCC alongside other security agencies, arrested 115 suspected currency racketeers in the state.

According to a statement from the commission, the suspects are 113 males and two females and were arrested in a sting operation at Owerri Road, Ogui, Enugu State, following credible intelligence about the shoddy activities of some BDC operators, currency speculators and street hawkers operating illegal foreign exchange markets in the state.

The EFCC noted that items recovered from the suspects include: N110, 700,000.00, $8,368.00, £145.00, €2,725, 900 South African Rands, 32,000.00 CFA, 100 Turkiya, and 500 Bank Mozambique currencies in different denominations.

Meanwhile, a safe abandoned by one of the street hawkers was also recovered. The commission said that preliminary investigation showed that some of the suspects are foreigners from Niger Republic and would be charged to court soon.

CBN reforms

Within the past week, the Central Bank of Nigeria (CBN) has also introduced several directives targeted at addressing the naira depreciation crisis in the country.

Last Wednesday, the CBN in a circular addressed to all banks, announced that cash payment for Personal and Business Travel allowances (PTA/BTA) would no longer be allowed.

To promote transparency and accountability in the forex market, the CBN directed all banks to process the allowances through electronic channels.

“Memorandum 8 of the Foreign Exchange manual and the circular with reference FMD/DIR/CIR/GEN/08/003 dated February 20, 2017, stipulate the eligibility criteria for accessing Personal and Business Travel allowances (PTA/BTA),” said the circular signed by Hassan Mahmud, the Director of the Trade and Exchange Department.

 

The CBN urged all authorised dealers and the public to adhere to the new directive promptly to facilitate a seamless transition to electronic payouts.

 

On Friday, in response to concerns regarding inconsistent import duty assessment levies, the CBN also issued a directive advising the Nigeria Customs Service to adopt the closing foreign exchange rate in the official window for import duty calculations.

 

The apex bank also released revised regulatory and supervisory guidelines for BDC operations in the country.

New directives

Among several directives listed in the newly revised guidelines, the CBN stated that certain entities like banks, government agencies and NGOs among others are not allowed to have ownership stake in BDCs.

The CBN noted that BDCs can buy and sell foreign currencies, issue prepaid cards, and serve as cash points for money transfer operators. However, they cannot take deposits, grant loans, deal in gold or engage in capital market activities.

The apex bank’s new guidelines stated that BDCs can source forex from authorised dealers, travellers, hotels, embassies, but large transactions above $10,000 require declaration of source.

“Sellers of the equivalent of USD10,000 and above to a BDC are required to declare the source of the foreign exchange and comply with all AML/CFT/CPF regulations and foreign exchange laws and regulations,” the CBN said.

The bank said BDCs may source foreign currency from tourists, returnees from the diaspora, expatriates with foreign exchange inflows from work, travel, investment or their domiciliary accounts.

Other sources listed by the CBN include: residents with foreign exchange inflows from work, travel, investment or their domiciliary accounts, International Money Transfer Operators (IMTOs), Embassies, Hotels that are authorised buyers of foreign currencies, the Nigerian Foreign Exchange Market (NFEM) as well as any other source that the CBN may specify.

Forex transfers

According to the new guidelines, the CBN said customers may transfer foreign currencies from their individual domiciliary accounts with Nigerian banks to BDCs.

“All digital/transfer purchases of foreign currencies shall be credited to the BDC’s Nigerian domiciliary account,” the bank noted.

It said payments for all digital/transfer purchases of foreign currency by a BDC shall be by transfer to the customer’s Naira account.

If the customer is non-resident (whether Nigerian or not), the CBN said a BDC may issue the customer a “prepaid NGN card”, adding that where such a card is issued, relevant maximum credit and cumulative limits, in line with relevant Know Your Customer requirements, shall apply.

The guidelines stated that payments to customers for cash purchases of foreign currency, the equivalent of above $500, shall be by transfer to the customer’s naira bank account.

Financial experts have asserted that the recent move by the CBN suggests the bank is “taking control” to curb forex manipulation in the country.

Some experts noted that for the apex bank to succeed in its plan to control BDC operations and restrict certain entities from owning BDCs, compliance with strict regulations for forex transactions must be a priority.

Surveillance on Governors

Another measure taken by the Nigerian government to avert developments that could negatively impact the local currency, inside sources confirmed to PREMIUM TIMES, was the monitoring of all forms of sinister activities in the foreign exchange market ahead of the Federation Account Allocation Committee (FAAC) meeting on Thursday.

PREMIUM TIMES reported that there was intense apprehension at the Central Bank of Nigeria (CBN) that the Naira could weaken further as the FAAC was set to disburse allocations from the revenues generated into the federation’s accounts among the federal, state and local governments.

Sources within the apex bank Thursday told PREMIUM TIMES that there were concerns that funds from FAAC were often illegally converted to dollars by some corrupt state governors at the unofficial market, with a ripple effect on the value of the local currency.

There are claims that some governors convert vast amounts of Naira to dollars in the black market each time FAAC funds are disbursed.

Those familiar with the matter say huge chunks of the allocations are usually wired through suspect bank accounts to Bureau De Change operators who then deliver dollars in cash to the governors. The corrupt practice, authorities believe, is destabilising the country’s foreign exchange market.

At the weekend, security operatives were mobilised in numbers to monitor illicit activities in the forex markets amid efforts to stabilise the market and protect the value of the local unit.

 

 

 

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