Central Bank Of Nigeria Releases Guidelines For Free Foreign Exchange Deposit Window

The Central Bank of Nigeria has issued guidelines to banks on implementing the free foreign exchange deposit window announced by the Federal Government recently.

The guidelines released by the CBN on Tuesday provided the modalities for the participation of commercial, merchant, and non-interest banks in the scheme.

The notice of the scheme guidelines, which takes effect from Wednesday, was jointly signed by the acting Director of the Financial Policy and Regulation Department, John Onojah, and the acting Director of the Banking Supervision Department, Dr Adetona Adedeji.

According to the document ‘Guidelines On Implementation Of The Foreign Currency Disclosure, Deposit, Repatriation, And Investment Scheme, 2024,’ banks are at liberty to trade with the forex made available by scheme participants.

“Commercial, merchant, and non-interest banks may trade with any deposited ITFC (Internationally Tradable Foreign Currencies) not immediately invested by a participant, provided that the funds would be made available to the participant when needed.

“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,” part of the guidelines read.

The Federal Government recently announced a nine-month programme beginning on October 31, 2024, that allows individuals to deposit dollar bills held outside the formal banking system without scrutiny.

The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, revealed this after the 144th meeting of the National Economic Council, the country’s highest economic advisory body, chaired by Vice President Kashim Shettima at the State House, Abuja.

“There will be no penalty; there will be no taxes, and there will be no questions,” he told journalists at a briefing after Thursday’s meeting.

The apex bank in its latest guidelines, also stated that banks are required to demand details such as the Bank Verification Number and National Identification Number (for natural persons and directors of incorporated entities) or a Tax Identification Number (for legal persons).

Other requirements include the amount of the ITFC sought to be deposited; details of the applicant’s designated domiciliary account into which the ITFC shall be deposited and other information as the bank may require from time to time.

CBN also demanded that banks must not contravene anti-money laundering /Combating the Financing of Terrorism/Countering Proliferation Financing laws and regulations.

The regulator said the banks must conduct customer due diligence, “including identifying the beneficial owner of the funds on applicants who are transferring, repatriating, or depositing funds under the programme, based on an assessment of the applicable risks;

“ii. identifying the beneficial owner of the account into which the funds are being transferred, repatriated, or deposited under the Scheme; iii. ensuring deposits under the Scheme by way of wire transfers are compliant with extant requirements regarding such transactions;

“and iv. subjecting funds repatriated from countries that do not adequately apply the FATF Recommendations to enhanced due diligence and scrutiny.”

Experts react

Meanwhile, some experts have expressed support for the Federal Government’s free foreign exchange deposit window which was announced last Thursday.

In separate chats with The PUNCH, the market watchers noted that the move would boost liquidity in the foreign exchange market.

A capital market and economic analyst, Rotimi Fakayejo, said it was a step in the right direction which should be followed up to discourage dollar-denominated transactions within the country.

“This is something I have always advocated for. They should allow everyone to bring in their money. When they do, the new regulations can step in. they should not stop at that. When the dollars come in, there should be no more dollar-denominated transactions in the country,” Fakayejo said.

According to Fakayejo, the government should not offer bonds targeted at those in Nigeria, it should be for those in the diaspora.

“If this is done, it will reduce pressure on the exchange rate and make available forex for those who want to do importation. It will have an all-round effect at the end of the day. It will help price stability and improve the inflationary pressure. It is something that they should have done since. Once this is done, it should be a criminal offence to spend dollars in Nigeria,” Fakayejo advised.

The analysts at Meristem in their weekly market report posited that the scheme which seeks to improve transparency and integrate foreign currency held outside the formal financial system into the formal economy, “presents an opportunity to integrate foreign currencies held outside the financial sector, channel it for productive use by the real sector, and improve FX supply.”

An economist and consultant in Business Strategy & Sustainability, Marcel Okeke, while pointing out the benefits, wondered if the trust deficit between the government and the citizens will help the scheme.

He said, “This is still part of the desperation in trying to stabilise the forex market. Of course, you know the disequilibrium in terms of FX supply and demand. This is intended to encourage people to bring their dollar bills into the formal system in the belief that a lot of people have dollars outside the banking system,”

Okeke maintained that the challenge with that policy is its failure to state what the depositors would gain from the policy.

According to him, the policy is more of the government gaining by beefing up the supply of dollars.

“If people who have such money bring it in, it is likely to boost the supply of dollars available to the government,” Okeke said.

He expressed worry that the government has a deficit of confidence with the people because of the policy somersaults in the last year.

“So people would feel more confident to keep their dollars near than taking the risk of bringing into the banking system. There is also the challenge that this opportunity could encourage people to embark on some kind of money laundering. So the government needs to sharpen its anti-money laundering tools otherwise what they have been pushing against all these years would happen,” he advised.

In the currency market, the performance of naira further deteriorated in October.

The Afrinvest Monthly Market Report indicated that naira declined by eight per cent month-on-month against the base currency to N1,675.50/$1 at the official window domiciled on the FMDQ Exchange. Likewise, at the parallel market, it declined 2.7 per cent m/m to close at N1,726.00/$1.

Meanwhile, the activity level at the NAFEM window improved as total turnover increased 46.6 per cent m/m to $166.6bn.

“Looking ahead, we expect naira to trade within the current band with little room for volatility provided there is no significant inflow to boost FX supply,” the analysts projected.