The Central Bank of Nigeria (CBN) has welcomed a decision by national banks not to accept foreign currency cash deposits in a bid to bolster the country’s currency. In a statement on its website, the CBN said the decision was made to avoid illicit financial flows in the country’s banking system. The statement also specified that only wire transfers were allowed and advised citizens who wished to obtain foreign currency “for legitimate purposes” to source it through “recognized channels”.
The CBN said the decision follows banks’ growing concern regarding the amount of foreign currency in their vaults. “Therefore, in its continued efforts to stop illicit financial flows in the Nigerian banking system, which aligns with the anti-money laundering stance of the federal government, the CBN hereby prohibits from the date of this circular the acceptance of foreign currency cash deposits by [Deposit Money Banks] DMBs,” the statement read.
According to Peter Walker, Director of Pielle Consulting Ltd, the decision is part of the country’s attempt to strengthen the Naira and improve the economy following the depreciation of the currency and the fall of oil prices.
“Any banks that find themselves with a large amount of foreign currency deposits are going to regard these deposits as potentially destabilizing, because they don’t have control over them,” he said.
“If you have dollars in your wallet now, can you guarantee that they are going to be worth [a certain amount] in Naira, or euros tomorrow? No, because you don’t have control over the dollar exchange rate. This is, to a certain extent, a move by the banks to reduce their risk and exposure as well as aligning with the central bank’s activities to strengthen the Naira,” he added.
“Certainly the central bank, in terms of controlling liquidity and the value of the Naira, has to be very conscious of the fact that perhaps reducing the amount of foreign cash can help the economy,” he continued.
Walker added that the new government, led by newly elected President Muhammadu Buhari, is committed to promoting national companies and that any decision aimed at strengthening the Naira will benefit Nigerian businesses, particularly agriculture and manufacturing.
“There is a general atmosphere in the Central Bank, among the Nigerian Banks, and in the Government at all levels of ensuring that national businesses or businesses within Nigeria are encouraged to develop so that the proportion of their activity within the economy grows,” he said.
“Nigeria is a big oil producer and at the moment the agricultural and manufacturing sectors are still neglected and agricultural imports are still too high. Banks have taken steps to both discourage imports and encourage agricultural development within in Nigeria. I believe we should view these moves as part of a package: It is about strengthening the Nigerian economy and the non-oil economy in particular. Any decisions taken by the banks in parallel with the central bank’s activities to strengthen the Naira has to be good for Nigerian businesses, particularly for the manufacturing and agricultural [sectors].”
Buhari urged to end oil subsidy and privatize refineries
The decision to ban foreign cash deposits came as President Muhammadu Buhari, who took office in May, has been urged to end the government’s oil subsidy which, according to some, hampers the growth of the country’s economy.
The low amount of oil refining capability in Nigeria means that the country – which is Africa’s biggest oil producer – has to export about 90% of its crude oil and import back refined petroleum products at international prices. The government then sells fuel to Nigerians at subsidized prices and reimburses the difference to importers.
In 2012, the government attempted to end the fuel subsidies, essentially doubling the price of fuel overnight, triggering nationwide protests. Citizens argued that low fuel prices are the only benefit citizens enjoy living in the oil-rich nation. The government backtracked on its decision, following the protests.