Diaspora remittances: ‘Banks could hoard foreign currency’

Following the Central Bank of Nigeria (CBN) circulars amending and clarifying the procedure for receipt of diaspora remittances, a legal expert, Ifeoluwa Ebiseni an Associate at AELEX legal practitioners has warned that, Deposit Money Banks (DMBs) could hitherto hoard the foreign currency received, to be sold at a time when the Naira is devalued.

The lawyer said this often leads to scarcity, with negative effects on the exchange rate.

The CBN aims to eradicate this by mandating that funds received from outside Nigeria be remitted directly in foreign currency.

CBN aims to centralise the system and cut off all unofficial channels through which diaspora remittances were hitherto made, as this facilitated the diversion of remittance flows meant for Nigeria.

According to Ebiseni, it is hoped that with effective monitoring, the management of foreign exchange in the country will become more transparent and effective.

Over the past few weeks, the CBN has issued circulars amending and clarifying the procedure for receipt of diaspora remittances.

According to the CBN, the circulars were issued in an effort to liberalise, simplify and improve the receipt and administration of diaspora remittances into Nigeria. It was also stated that the clarifications and amendments are aimed at stabilising and deepening the foreign exchange market, providing more liquidity, and creating transparency, especially in the administration of diaspora remittances into Nigeria.

The bank had instructed that beneficiaries of diaspora remittances through International Money Transfer Operators (“IMTOs”) shall receive such inflows in foreign currency (US Dollars) through designated banks of their choice.

The beneficiaries/recipients will have the option of receiving the funds in foreign currency cash or by direct transfer/credit in their ordinary domiciliary accounts.

The beneficiaries will also have unfettered access and utilisation to such foreign currency proceeds, either in cash and/or in their domiciliary account.

This point was further clarified by the TED/FEM/FPC/GEN/01/010 circular issued by the CBN on the same day (the 2nd circular).

In this circular, it was stated that where ordinary domiciliary accounts are funded by electronic/ wire transfer, account holders would be allowed unrestricted use of the funds for eligible transactions. However, where funded by cash lodgments, existing regulation will continue to apply. Export Proceeds Domiciliary Accounts will also continue to be operated based on existing regulations (i.e. use of funds in the account for business operations only).

The first circular was received with mixed reactions by stakeholders and the public. The CBN, in an attempt to clarify its position on the subject, issued a further circular TED/FEM/FPC/GEN/01/012 on December 2, 2020 (the third Circular) stating that: “IMTOs must ensure that all funds in favour of beneficiaries /recipients are deposited into the Agent Banks’ correspondent account.

“The DMBs in Nigeria will be responsible for the final payment to beneficiaries/recipients either in USD cash or by transfer.

“The beneficiaries have the sole discretion of deciding the mode of payment to be adopted.

“In furtherance of this, the CBN on the same day issued a directive to DMBs, insisting that they must close all Naira general ledgers through which the Naira remittances were hitherto being carried out,” Ebiseni stated.

In clarification of this new CBN policy, the CBN Governor, Mr. Godwin Emefiele, at a press conference in Abuja on December 3, 2020, stated that the CBN had engaged with the DMBs and IMTOs to ensure that recipients of remittance inflows are able to receive their funds in the designated foreign currency of their choice, to enable smooth implementation of the new policy.

According to the legal expert, the closure of the Naira general ledgers was necessary because they had encouraged the use of unsafe unofficial channels, which also supported the diversion of remittance flows meant for Nigeria, thereby undermining the foreign exchange management framework.

Based on the data culled by the CBN, the size of remittance computed by the International Monetary Fund (IMF) shows that the IMF takes into consideration money that comes in directly as flows and the earnings of Nigerians in Diaspora in different parts of the world in computing remittances. Thus, the new policy will allow for proper accounting of the foreign exchange (forex) inflow in Nigeria.

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