The Central Bank of Nigeria has issued guidelines to banks for implementing the Federal Government's recently announced free foreign exchange deposit window.
Released on Tuesday, the guidelines outline the procedures for commercial, merchant, and non-interest banks to participate in the initiative.
The notification concerning the scheme's guidelines, effective from Wednesday, was jointly signed by John Onojah, the acting Director of the Financial Policy and Regulation Department, and Dr. Adetona Adedeji, the acting Director of the Banking Supervision Department.
The document titled ‘Guidelines On Implementation Of The Foreign Currency Disclosure, Deposit, Repatriation, And Investment Scheme, 2024’ states that banks can engage in trading with the foreign exchange provided by participants in the scheme.
“Commercial, merchant, and non-interest banks are permitted to trade with any deposited Internationally Tradable Foreign Currencies (ITFC) that are not immediately invested by a participant, ensuring that the funds will be accessible to the participant when required.
“Interest payments by CMNIBs on the balance in the designated domiciliary account will adhere to the relevant provisions outlined in the Guide to Charges by Banks and Other Financial Institutions in Nigeria,” a section of the guidelines indicates.
Recently, the Federal Government announced a nine-month program starting on October 31, 2024, which allows individuals to deposit dollar bills held outside the formal banking system without undergoing scrutiny.
Wale Edun, the Minister of Finance and Coordinating Minister of the Economy, disclosed this information following the 144th meeting of the National Economic Council, the country’s principal economic advisory body, chaired by Vice President Kashim Shettima at the State House in Abuja.
“There will be no penalty; there will be no taxes, and there will be no questions,” he told journalists at a briefing after Thursday’s meeting.
The central bank, in its most recent directives, has mandated that financial institutions collect specific information, including the Bank Verification Number and National Identification Number for individuals and directors of incorporated entities, or a Tax Identification Number for legal entities.
Additionally, banks are required to obtain details regarding the amount of the International Trade and Finance Corporation (ITFC) funds intended for deposit, as well as information about the applicant's designated domiciliary account for the deposit of the ITFC. Other information may be requested by the bank as necessary.
The Central Bank of Nigeria (CBN) has also emphasized that banks must adhere strictly to laws and regulations concerning anti-money laundering, combating the financing of terrorism, and countering proliferation financing.
Furthermore, the regulator has instructed banks to perform customer due diligence, which includes identifying the beneficial owner of the funds for applicants involved in transferring, repatriating, or depositing funds under the program, based on a thorough risk assessment.
“ii. identifying the beneficial owner of the account into which the funds are being transferred, repatriated, or deposited under the Scheme; iii. ensuring deposits under the Scheme by way of wire transfers are compliant with extant requirements regarding such transactions; “and iv. subjecting funds repatriated from countries that do not adequately apply the FATF Recommendations to enhanced due diligence and scrutiny.”
Experts Respond
In the wake of the Federal Government's announcement last Thursday regarding a free foreign exchange deposit window, several experts have voiced their support for the initiative.
In discussions with The PUNCH, these market analysts emphasized that this action is likely to enhance liquidity within the foreign exchange market.
Rotimi Fakayejo, a capital market and economic analyst, described the initiative as a positive development that should be complemented by measures to discourage dollar-denominated transactions domestically.
“This is something I have always advocated for. They should allow everyone to bring in their money. When they do, the new regulations can step in. they should not stop at that. When the dollars come in, there should be no more dollar-denominated transactions in the country,” Fakayejo said.
He further suggested that the government should focus on issuing bonds aimed at individuals in the diaspora rather than those residing in Nigeria.
“If this is done, it will reduce pressure on the exchange rate and make available forex for those who want to do importation. It will have an all-round effect at the end of the day. It will help price stability and improve the inflationary pressure. It is something that they should have done since. Once this is done, it should be a criminal offence to spend dollars in Nigeria,” Fakayejo advised.
The analysts at Meristem, in their weekly market report, suggested that the initiative aimed at enhancing transparency and incorporating foreign currency held outside the formal financial system into the mainstream economy "offers a chance to assimilate foreign currencies from outside the financial sector, direct them towards productive applications in the real sector, and enhance foreign exchange supply."
Marcel Okeke, an economist and consultant specializing in Business Strategy & Sustainability, acknowledged the potential advantages of the scheme but raised concerns about whether the existing trust deficit between the government and the populace would support its success.
He said, “This is still part of the desperation in trying to stabilise the forex market. Of course, you know the disequilibrium in terms of FX supply and demand. This is intended to encourage people to bring their dollar bills into the formal system in the belief that a lot of people have dollars outside the banking system,”
Okeke argued that the issue with the policy lies in its lack of clarity regarding the benefits for depositors. He suggested that the policy primarily serves the government's interests by increasing the availability of dollars.
“If people who have such money bring it in, it is likely to boost the supply of dollars available to the government,” Okeke said.
He voiced concerns regarding the government's diminishing trust among the populace, attributing this to the frequent policy changes over the past year.
"This situation may lead individuals to prefer keeping their dollars close rather than risking them in the banking system. Additionally, there is a risk that this scenario could incentivize money laundering activities. Therefore, the government must enhance its anti-money laundering measures; otherwise, the issues they have been combating for years may resurface," he cautioned.
In the currency market, the naira's performance worsened in October.
According to the Afrinvest Monthly Market Report, the naira fell by eight percent month-on-month against the base currency, reaching N1,675.50/$1 at the official window on the FMDQ Exchange. Similarly, in the parallel market, it decreased by 2.7 percent month-on-month, closing at N1,726.00/$1.
Meanwhile, activity at the NAFEM window saw improvement, with total turnover rising by 46.6 percent month-on-month to $166.6 billion.
"Looking forward, we anticipate that the naira will trade within the current range, with limited potential for volatility, provided there are no significant inflows to enhance FX supply," the analysts forecasted.