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CBN may restrict dollar payments to beneficiaries of Diaspora Remittances, limit cash payout

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By Oludare Mayowa

The Central Bank of Nigeria (CBN) has taken a significant step to manage and stabilize the naira payout for Diaspora remittances in a bid to curtail the rapid depreciation of the local currency.

In a circular dated August 9, 2023, addressed to authorized dealers, international money transfer operators, and the general public, the CBN introduced exchange rate limits for naira payouts of Diaspora remittances.

The circular, signed by the Director of the Trade and Exchange Department at the CBN, Ozoemena Nnaji detailed the new framework for naira payment options.

According to the directive, the naira payout for Diaspora remittances should be conducted within a range of -2.5 percent to +2.5 percent of the previous day’s average rate on the Investors’ and Exporters’ (I&E) window.

The text of the circular stated, “Further to the circular referenced in TED/FEM/PUB/FPC/001/004 dated July 10, 2023, and the meetings held with all banks and IMTOS, the Central Bank of Nigeria hereby announces an allowable limit of -2.5 percent to +2.5 percent of the Investors’ and Exporters’ window average rate of the previous day as the anchor rate for the naira payout option.

“Accordingly, all banks and International Money Transfer Operators are required to adhere to the stipulated limits. Please note and ensure strict compliance.”

Analysts say the move might be the beginning of restrictions on dollar cash payments to beneficiaries of Diaspora remittances in a bid to deny the parallel market forex flow and curb speculation on the local currency.

This move comes in response to concerns raised by the acting CBN governor, Folasodun Shonubi who recently highlighted the adverse impact of diverting Diaspora remittances to the parallel market on the local currency.

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Shonubi emphasized the CBN’s commitment to making the forex market more efficient and effective amid heightened demand for dollars.

“The role of the central bank is to intervene and keep the market at a fairly stable level,” Shonubi stated, underscoring the CBN’s role in managing market dynamics.

The disparity between the exchange rates observed on the I&E forex window and the parallel market has widened to approximately N100 due to foreign exchange shortages.

The move may also be in tandem with the announcement made by Shonubi on Monday at the presidential villa, Abuja that the CBN plans to implement new measures aimed at stabilizing the naira against the dollar as part of efforts to address the persistent depreciation of the local currency.

“We do not believe that the changes going on in the parallel market are driven by pure economic demand and supply but are touched by speculative demand from people.

“Some of the plans and strategies, which I am not at liberty to share with you, mean that sooner rather than later, the speculators should be careful because we believe the things we’re doing, when they come to fruition, may result in significant losses to them,” Shonubi told reporters at the state house on Monday after meeting with President Bola Tinubu.

In response, the Economic Intelligence Unit has projected that the CBN may intensify its management of the exchange rate in the latter part of 2023 to counter rapid price increases.

Market participants and observers are now closely watching the effects of the CBN’s new exchange rate limits on diaspora remittances and their potential implications for the broader foreign exchange landscape.

(Contact; omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)

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