Why Central Bank of Nigeria Must Not Listen To Money Transfer Operators On USD Remittance Payments

Why Central Bank of Nigeria Must Not Listen To Money Transfer Operators On USD Remittance Payments
The Central Bank of Nigeria made a very great call a few weeks ago, by mandating banks to pay diaspora remittance in US dollars in Nigeria, discarding an old practice where people whose family members had sent dollars were paid in Naira, using the official exchange rate. I noted that the decision by the apex bank was a great one, as that decision would improve supply of dollars in the nation, with the resulting impact of reducing the pressure on naira against US dollars. But some industry players are not happy with this new policy.
In a report by Nairametrics, the Association of Licensed Mobile Payments Operators (ALMPO)  is asking the apex bank to reverse the payment in dollars of these remittance transactions. Largely, they want to continue to receive the US dollars and pay people in Naira, making money on the exchange rate differential.  The new CBN policy has forced them to rely entirely on transaction commissions.

“The CBN’s decision to restrict international remittances to USD payouts only is the overarching concern of everyone. It certainly limits the number of Nigerian citizens that can conveniently access funds sent from the diaspora. I sincerely hope that CBN reconsiders its position on this, and re-allow Naira payments in cash or into accounts or wallets,” Jay Alabrabra, Chairman of ALMPO, Mr. Jay Alabrabra.

These payment operators are not fair on this request; they are looking out for themselves and not the citizens. Nothing stops any receiver from asking a bank to pay in Naira, and that payment will likely be at a better exchange rate since the bank will know the person can ask for the dollars, and walk out, and change them in bureau de change. Technically, there is no way this new policy is limiting the “number of Nigerian citizens that can conveniently access funds sent from the diaspora”.

What is happening here is clear: CBN asked banks to close the  Naira accounts of these operators, and that simply meant they have been disintermediated in the system. As I noted, if the money was sent in US dollars and would be paid in US dollars, the phase in the chain where they operate in Nigeria has been eliminated. By the appeal, they are asking the government to make them relevant again.

But from my understanding, this is what CBN is doing here: in the past, when you wired USD, Euro or any foreign currency from abroad to Nigeria, you were paid in Naira, determined by the CBN official exchange rate. The IMTOs maintained a special purpose naira account to work on that reconciliation between the USD, etc they had received, say in the US and UK. and the naira they have settled in Nigeria.

But under the new CBN policy, where the USD or Euro is paid in the same currency in Nigeria to the recipient, there is practically no need for IMTOs to run a naira account. In other words, they have been disintermediated in the system locally. What happens is this: it is now between CBN and IMTOs offshore offices, and CBN and local banks since one currency is involved. The IMTOs local naira accounts are now redundant and of no value.  (They can of course run the usual current and saving accounts).

The apex bank should not listen to them: they can pivot to other sectors in the economy, and not just depend on the arbitration on exchange rate to make a living in Nigeria. Indeed, there are some sectors which Nigeria must be bold to phase out if we expect the economy to be transformed.

Why Central Bank of Nigeria Asked Banks To Close Naira Accounts of Money Transfer Operators

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18 thoughts on “Why Central Bank of Nigeria Must Not Listen To Money Transfer Operators On USD Remittance Payments

  1. These are the kind of lugubrious news we get when such people that came with a central decisions like that sits under the tutorship of rccg and the likes.

    Reply
  2. The policy would indeed increase the supply of dollar in the Nation and of course be of specific value to specific individuals. However, I do not see how the policy makes foreign remittance easier to access to Nigerians. The overall purpose of institutions in my view lies in its responsibility in making the life’s of its citizenry easier. Data is king and time would tell if the decision truly favoured the common man.

    Reply
      1. It is a welcome decision. However we should understand that Nigerian Govt is not always consistent with policy framework. We should also think about taking the arbitrage charges from Foreign trade too by reverting back to trade by barter. This can reduce cost of imports. Thirdly can democratize financial credit.

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    1. “The policy would indeed increase the supply of dollar in the Nation” if that happens, over time, the black market rate will fall between Naira and USD. I expect that to happen in Q1 2021. Scarcity is the reason why the rate is rising.

      Reply
      1. Certainly, this policy must be praised and supported by all! The IMTOs can migrate to other sectors of the economy ! For me this is the most progressive policy of the CBN in recent times! It also give clear visibility to all remittances in a transparent manner and the general public benefits along with the government ! A win – win ! Bravo CBN!

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      2. Certainly, this policy must be praised and supported by all! For me this is the most progressive policy of the CBN in recent times! It also give clear visibility to all remittances in a transparent manner and the general public benefits along with the government ! A win – win ! Bravo CBN!

        Reply
      3. You are spot on. This policy should even be extended to the monthly faac allocation to each state. Give the state’s allocation in $ and see the Naira free fall reverse itself. This is basic economic 101_ demand and supply

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  3. This Policy from CBN to ensure remittances are in USD should be praised. When dollars become more available, the black market rate comes down and so do goods (since almost everything is imported). In the big picture, a stronger naira/buying power is how the common man benefits.

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  4. Kudos to the CBN on this one. The differential between the official CBN rate and the black market has created room for exploitation. If this policy is sustained, overtime Aboki and banks may have a rate pretty much within 5-10 dollars.

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  5. You are spot on. This policy should even be extended to the monthly faac allocation to each state. Give the state’s allocation in $ and see the Naira free fall reverse itself. This is basic economic 101_ demand and supply

    Reply
  6. ALMPO never counter CBN policy on IMTO but asked CBN to reconsider the move to deactivate wallets from receiving payments or remittances under the new IMTO regime. The policy is capable of slowing down the ongoing efforts on mobile money adoption and use in Nigeria.

    The interview granted by ALMPO chairman was a total deviation from the publication flying around.

    I must express my disappointment over this your rejoinder, as a professional media person, your duty is to investigate the article you read and contact ALMPO if the story was actually true.

    Investigation reportage is key to avoid fake contents pushing to the public.

    Thank you.

    Reply
  7. I believe the “receive your cash in dollar” policy would be good for the naira in the long run. First, more diaspora Nigerians would be encouraged to send down dollars for projects etc knowing that the receiver would get market reflective rates. Secondly, as more and more of these dollars hit the parallel market chasing the naira, the operators are expected to experience a dollar build up at some point, in comparison to the demand for the dollar. This is when the exchange rate should start correcting in favour of the naira.

    Reply

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