CBN Naira 4 Dollar Scheme: A Subtle Devaluation?
CSL Research – A recent circular issued by the Central Bank of Nigeria (CBN) to all Deposit Money Banks, International Money Transfer Operators (IMTOs), and the General Public, states that all recipients of diaspora remittances through approved IMTOs and commercial banks shall receive N5 for every USD1 received as remittance inflow.
According to the Apex bank, this scheme is to encourage the inflow of diaspora remittances and will take effect from 08 March 2021 and ends on 08 May 2021 (two months). This policy direction alludes to the continued efforts of the bank to increase remittance inflows into the country through official sources.
Several actions have been taken by the Apex bank to increase its foreign earnings and improve liquidity across the FX windows. On 30 November 2020, the CBN directed all IMTOs to pay funds to beneficiaries of diaspora remittances in foreign currency (US Dollars) as against the erstwhile Naira payment aimed at reducing pressure on the FX parallel market.
Noticeably, the exchange rate at the parallel market improved slightly following this directive as the US dollar exchanged for N465/US$ as of 28 December compared with N500/US$ on 30 November 2020.
Based on World Bank data, the country’s total direct remittance inflows have averaged $US21bn in the past 9 years. This clearly reflects the high level of migration within this period linked to a number of reasons. Based on these numbers, the CBN will be paying forex earners c.N17.5bn as incentives for the two months that the policy will be in effect.
Many analysts worry that taxpayers funds will be going to reward forex earners and many others see the policy as a subtle devaluation. Pressure persists in the FX market, as Naira depreciated by 1.09% on Friday to close at NGN411.00/USD at the I&E window but closed flat at NGN480.00/USD at the parallel market.
Naira will remain pressured, as the spread between the spot rate and 1-year NDF contract suggests a possible devaluation. The external reserves at US$34.9bn were down 3.3% month-on-month as of 03 March 2021.