The Central Bank of Nigeria (CBN) has authorized commercial, merchant, and non-interest banks in the country to manage tradeable foreign currencies deposited in domiciliary accounts established through the new Foreign Currency Disclosure, Deposit, Repatriation, and Investment Scheme.
This scheme, which comes into effect on November 6, 2024, will allow banks to trade with funds that remain uninvested in these accounts, provided they remain accessible to account holders upon request.
According to CBN’s recently released guidelines, banks must ensure that these deposits are readily available to participants when requested. The guidelines state, “CMNIBs [Commercial, Merchant, and Non-Interest Banks] may trade with any deposited ITFC [Investment Funds Transfer Certificate] not immediately invested by a participant, provided that the funds would be made available to the participant when needed.”
Additionally, the CBN mandates that participating banks must provide monthly returns on these accounts no later than the 14th of each month to enhance transparency and accountability. Specifically, the CBN requires that interest on uninvested funds be paid following the provisions outlined in the “Guide to Charges by Banks and Other Financial Institutions in Nigeria.”
The CBN noted, “Interest payment by CMNIBs on the balance in the designated domiciliary account shall be in line with relevant provisions of the Guide to Charges by Banks and Other Financial Institutions in Nigeria.”
Requirements for Reporting
The guidelines require banks involved in the scheme to render detailed monthly reports, including data on the number of scheme participants, the total value of ITFCs deposited, and the cumulative value for the financial year. The reports should also address notable trends or challenges during the reporting period, ensuring full transparency and enabling effective CBN oversight.
To further enforce accountability, banks must disclose financial transactions conducted under the scheme and specify the types of permissible instruments and sectors where these investments are made.
“Every CMNIB shall render monthly returns (in line with a template to be advised by the Banking Supervision Department) to the Bank on the operation of the Scheme not later than the 14th day of the following month,” the CBN directive stated.
The CBN also instructed banks to submit records of uninvested ITFCs, detailing any trades, investments, and loans funded from these unused funds. This measure is to ensure that all unallocated funds are fully accounted for, with a statement on the balance of uninvested ITFCs included in the returns. The CBN added that it may request additional information from banks to support its ongoing monitoring and evaluation of the scheme.
A New Voluntary Currency Disclosure Scheme
The CBN’s approval of the foreign currency management guidelines follows the recent launch of a nine-month window by the Federal Government for the Voluntary Currency Disclosure, Depositing, Repatriation, and Investment Scheme, known as the “Disclosure Scheme,” under Executive Order No. 15 of 2023. This initiative encourages Nigerians with foreign currency holdings to disclose and deposit these funds with local banks, bringing previously unreported assets into the formal banking system.
This voluntary disclosure scheme offers several incentives to encourage broad participation, including tax immunity, asset protection, confidentiality, interest on deposited funds, and flexible options for repatriating funds. The government is seeking to increase foreign currency inflows into the national economy, boost the financial system’s liquidity, and enhance Nigeria’s foreign exchange reserves, by creating a more favorable environment for holders of foreign assets.
This new directive marks another step by the CBN and the Federal Government to strengthen Nigeria’s foreign exchange reserves and integrate foreign-held assets into the national economy. The interest on deposits and the allowance for banks to trade with uninvested ITFCs is expected to provide liquidity for financial institutions, potentially stabilizing the forex market and supporting economic growth.
Moreover, these funds, once actively managed, are expected to offer a new income stream for banks, enhance capital for investments, and bolster the overall resilience of the financial sector.
However, analysts said the success of this program will largely depend on public trust in the scheme’s confidentiality and the appeal of incentives, such as tax immunity and repatriation flexibility, to attract domestic and foreign-based Nigerians holding undeclared foreign currency assets.
With the scheme set to launch in less than a month, the CBN and the Federal Government are optimistic that this initiative will encourage broader economic participation and help reduce reliance on informal channels for currency exchange.
