Nigeria’s depleting foreign exchange reserves, worsened by oil price plunge has now raised a critical concern of deploying ways to as much
as possible conserve foreign exchange in the country where Capital outflows have continued and, with lower oil receipts, have led to sustained pressure on the naira.
And one of such ways, experts say, is to strengthen the newly introduced outbound money transfer service which they think could help subdue some of this impact and narrow the premium between official rates.
Outbound money transfers now provide the Nigerian community the opportunity to transfer funds up to US$5,000 daily from to their relatives and dependents abroad (person to person transfer).
The service was initially limited to $2,000 per transaction and was recently raised by the Central Bank of Nigeria (CBN) to $5,000. But there are now calls for a consideration for a further to $10,000 at least, to allow more FX supply through the outbound service to cater for higher needs like medical tourism and reduce demand pressure at the BDCs and discourage arbitrage.
Nigeria remains vulnerable to oil price volatility and global financial developments, the International Monetary Fund (IMF) warned recently in its Article IV consultations with the country.
Gross Foreign reserves fell to $34.92 billion last Monday, down from $43.61 billion on December 31, 2013, according to CBN data.
The authorities-both fiscal and monetary, have reaffirmed their willingness to implement appropriate measures to manage risks.
The CBN hiked the benchmark interest rate to 13 percent in November, moved the naira’s official rate to N168 per dollar from N155 and also widened its trading band to +/-5 percent from 3 percent.
But despite the tightly managed official exchange rate, the interbank foreign exchange market and bureau de change rates have been trading at significant premia over the official Dutch auction rate, producing market distortions and contributing to inflation.
“Fiscal and external buffers are low and there is less policy space for maneuvering, compared to the onset of the 2008-09 financial crisis.
“Rebuilding buffers, especially the ECA, is a necessity for addressing future shocks, the IMF warned.
While the CBN said official exchange rate was N167.5 per dollar as at Tuesday (December 24), the bureau de change rates were as high as over to over N190 per dollar.
Speculations and round tripping are worsening the situation as the CBN tries out measures to curtail this – one being the recent reduction of the FX trading position of banks to zero percent of shareholders’ funds.
CBN sources confirmed that this was done to eliminate FX trading abuses by bank treasurers which had come to the notice of the regulator.
Strengthening and monitoring outbound money transfers would help a great deal, particularly in the usage and management of Foreign Exchange in the country, experts said. A critical benefit is that, it will help reduce the current incidence of arbitrage in the management of foreign exchange.
Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, said besides providing unique opportunity for Nigerians to be able to send out money abroad, the Service will help conserve Forex and external reserves, thereby helping in exchange rate management activity of the apex bank.
Transactions covered under this new initiative include the maintenance of allowance for children abroad, aged parents abroad, personal home remittances within allowable limits, a cash gifts within allowable limits, and other person to person remittances. But there are now to expand the scope a bit to higher up genuine dollar users.
The CBN hopes that the outbound money transfer will bring forex trading more into formal sector, making it even more efficient. It will also make it easier for low end users to access forex as well as help curtail the incidences of fake currencies in circulation.
A critical advantage is that it will help curtail the importation of dollars drastically as Nigeria is the only country know to still be importing cash dollars.
Experts say the fact that payments for remittance abroad can be done in local currency is exciting, especially with simplified procedures and minimal exchange control documentation.
First bank of Nigeria was the first to commence as the first Western Union Agent to offer this service but all other banks, including most of the licenced BDCs that meet the CBN requirements have also joined as agents.
For the BDCs, the hope is that it will help reduce the enormous pressure on them to source foreign exchange.
“We feel it is an opportunity for our BDC operators to also earn fees in areas that they hadn’t been introduced before now,” Emefiele said and that this it is one of the ways the CBN intends to make the BDC business robust.
To foster active participation of the BDCs, the CBN) is providing up N10 million in guarantees for each of the BDCs which signals interest and qualifies to participate in the outbound money transfer operations. The guarantees are to provide some confidence to the BDCs to carry out the transactions.
But the guarantee will be taken out of the BDC’s N35 million mandatory cautionary deposit held by the apex bank.
For the first time, Nigerian community is getting this privilege of sending funds to other countries by paying the Naira equivalent of the intended sum to the Money Transfer Service Operators for foreign currency disbursements to recipients abroad at a prevailing exchange rate, however with some charges.
The inbound money transfer services had been prevalent and only allowed receipts of funds transferred from senders abroad-a process was
dominated by three companies, the Western Union, Royale finance and Monegram.
Aida Diarra, Regional Vice President for Africa, Western Union had observed at the launch that the the outbound enabled service offering will be instrumental in making positive economic impact in the Africa’s largest economy by supporting business growth, social development and financial inclusion.”
