The Federal Government is reportedly considering a policy to convert foreign currencies held in domiciliary accounts of citizens to naira, aiming to stabilize the national currency.
If the plan proceeds, the government would mandate the conversion of foreign currencies in individuals’ and corporate organizations’ domiciliary accounts to naira at a rate determined by the Central Bank of Nigeria. This move is in response to the significant depreciation of the national currency, which experienced its worst performance in history earlier this week, falling by 24 per cent to close at N1,348 per dollar.
According to sources from the Presidency, the initiative aims to address the issue of forex scarcity and the fall of the naira, which is perceived as primarily affecting the elite. The sources emphasized that individuals and companies should not maintain domiciliary accounts unless they have legitimate foreign currency earnings, and any inflow should be promptly converted to the local currency.
This potential policy shift contrasts with the administration’s previous stance, as President Bola Tinubu had expressed intentions in September 2023 to attract funds from domiciliary accounts and Nigerians abroad for substantial investments in the economy. The Minister of Finance, Wale Edun, had highlighted the existence of significant foreign exchange reserves in domiciliary accounts and abroad, emphasizing the need to encourage these funds to be invested in the local economy.
In response to the current situation, a branch manager of a Tier-1 bank in Lagos expressed skepticism about the government’s ability to impose a lien on funds in domiciliary accounts. Additionally, concerns were raised about the potential challenges in determining the conversion rate for such funds.
Notably, the Central Bank of Nigeria has recently banned banks and fintechs from conducting International Money Transfer Operations (IMTO), allowing them only to act as agents. This move is accompanied by an increase in the minimum share capital requirement for IMTO operators to $1 million.
Despite the uncertainty and challenges, there are signs of the naira’s recovery, with its fall against the dollar slowing down in the past three days. The official exchange rate closed the week at N1,435.53/$ on Friday, showing a 3.17 per cent appreciation for the naira compared to its all-time high earlier in the week.
The government’s efforts to boost liquidity in the foreign exchange market include a directive to Deposit Money Banks to sell excess dollar stocks by February 1, 2024. The Central Bank also warned against hoarding foreign currencies for profit, introducing guidelines to reduce associated risks.
These developments reflect the ongoing efforts to address the challenges in the foreign exchange market, stabilize the national currency, and encourage the productive use of foreign exchange reserves.