CBN’s naira-only remittance policy may widen forex gap, economist warns

An economist, Alarudeen Aminu, has warned that the Central Bank of Nigeria’s (CBN) new policy ending dollar cash payouts for diaspora remittances could widen the gap between official and parallel foreign exchange markets.

Mr Aminu, an associate professor of economics at the University of Ibadan, said this in an interview with journalists on Monday.

He said that although the policy might be aimed at conserving the nation’s foreign exchange resources, it could also trigger distortions in the forex market if allowed to persist for too long.

“The goal might be to conserve the nation’s forex resources so that some semblance of stability can prevail in our official forex market in view of the consequences of the ongoing war in the Middle East,” Mr Aminu said.

According to him, one likely consequence of the policy is a reduction in the availability of foreign currency in the parallel market.

“While the official or inter-bank market may begin to reflect a premium due to the retention of remittance inflows that are no longer directly accessible to domestic recipients,” he said.

Mr Aminu, also the chairman of the Nigerian Economic Society, Oyo State chapter, said this could widen the gap between official and parallel market exchange rates.

He also said the policy could create arbitrage opportunities for banks and well-connected individuals who can access foreign exchange at official rates and resell it at higher rates in the parallel market.

The economist warned that if the difference between the two rates widens significantly, the economy could again face inefficient allocation of forex, with negative consequences for businesses and households.

He further said that firms might begin to price imported inputs and other goods using parallel-market rates, even when they obtained foreign exchange through official channels at relatively lower rates, thereby worsening inflationary pressures.

Mr Aminu, however, expressed hope that the measure would remain in force only for the duration of the current Middle East crisis.

He warned that a prolonged implementation could erode the gains already made in narrowing the gap between official and parallel market exchange rates.

The CBN had, in a recent circular to international money transfer operators (IMTOs) and authorised dealer banks, directed that all remittance inflows, beneficiary disbursements, and related settlements be processed through designated naira settlement accounts.

This, according to the CBN, is part of measures to deepen diaspora remittances and improve efficiency in the foreign exchange market.
(NAN)