Economic recovery and the overdue reforms – Part 3
Continued from yesterday
Three, between November 30 and December 4, 2020, CBN announced and implemented a policy measure directing deposit money banks to pay remittances from Nigerians in the Diaspora to recipients either in foreign currency cash (U.S. dollars) or into the recipient’s domiciliary account in Nigeria. Holders of dollar domiciliary accounts may exclusively use the remittances received for eligible imports with extra funds sold on the investors’ and exporters’ forex market segment. Non-domiciliary account holding recipients of remitted foreign currency cash, it was subsequently clarified, could patronise the ubiquitous bureaux de change (BDCs) and other foreign currency changers and enjoy purported market-reflective exchange rates.
The objectives of the new policy on remittances from Nigerians in the Diaspora (which had from1996 been left to the nest-feathering schemes of banks and international money transfer operators) were purportedly to deepen the foreign exchange market with “the estimated annual remittance inflow of close to $24 billion helping in improving our balance of payment position, reducing our dependence on external borrowing and mitigating the impact of COVID-19 on foreign exchange inflows into the country and guaranteeing that recipients of remittances would receive a market-reflective exchange rate for their inflows.” Figure out another blessing in disguise occasioned by the drop in crude oil prices!
As in its mishandling of FA dollar allocations, going by the above outline, the CBN leadership may be likened charitably to a Professor of English in a university pretending to lack knowledge of the English alphabet. For in Nigeria, CBN has turned bountiful merchandise oil export trade and humongous invisible export earnings from remittances to wreckers of the national currency and destroyers of domestic agricultural and industrial production. That outcome is antithetical to the economic principle that sizeable proceeds from exports strengthen a country’s currency and make the country wealthy. Surely, that is the reason Nigerian policy makers call for increased non-oil exports through diversification of the economy, an objective which the existing fiscal and monetary procedures have frustrated.
The remittance policy being implemented will also broaden the base of participants in the apex bank’s mongrel forex markets. The directive requiring remitted foreign currency cash to be paid into domiciliary accounts is an invitation to non-domiciliary account holders to jostle with themselves to open domiciliary accounts. Yet the operation of forex domiciliary account is in breach of the sole naira legal tender principal object of the CBN. The practice should have died naturally on the 29/5/1999 upon the country’s return to constitutional democracy. The multiple currency practice through operation of domiciliary accounts is a major contributory factor to the present relative worthlessness of the naira and the very poor state of the economy. For non-domiciliary account holders, the directive to banks to release to recipients of remittance U.S. dollar cash over the counter will let loose non-legal tender alien dollars on the streets, promote intense dollarisation and precipitate further free fall in the value of the naira. That development is doubly detrimental to the economy.
Doubtless, through the CBN policy measure, there will be unfettered access to billions of dollars via BDCs and other foreign currency changers on the streets. Dollars so acquired will, among other anti-economic activities, facilitate imports inclusive of dumped goods with the importers not paying customs tariffs and any imposed forex access tax (FAT). Such imports would worsen the undermining of domestic agricultural and industrial production. Thus through the naira-depreciating and egregiously unpatriotic policy measure, the CBN leadership has knowingly passed a sentence consigning our amply endowed and manifestly dollar-surplus economy permanently to the status of a banana republic. However, the apex bank’s sentence should be revoked. That end can be easily achieved as is self-evident via a little examination of the best practice method of infusing a country’s total export earnings beneficially into the system, the very method which the fiscal and monetary authorities under successive administrations have consistently and purposely stonewalled.
To wit, just as FA oil export proceeds enter through CBN vaults, private sector export receipts and the remitted foreign currencies arrive, safe and secure, through the bank accounts of recipients. Naira legal tender-wielding prospective buyers of foreign exchange own bank accounts.
Legitimate forex trading transactions are meant to be carried out through the banks, which indeed constitute the foreign exchange marketplace. Explicitly, like quoted company equity prices on the stock market, the market-reflective foreign exchange rates emerge in the deposit money bank-hosted single forex market under CBN’s regulatory control and not via the Investors’ and Exporters’ segment forex window or bureaux de change (BDCs) or other foreign currency traders on the street. The country’s pooled total supply of forex from all sources should be accessible to all and sundry prospective buyers of forex for legitimate activity at the SFM-reflective exchange rate. The forex holder/seller (be it government, corporate enterprise or individual) should be entitled to the market-reflective rate less the regulatory commission payable to the DMB forex broker. Forex holdings in existing forex domiciliary accounts and incoming remitted dollar funds in non-forex domiciliary account-holding recipients’ naira accounts should be transacted and converted to naira legal tender funds within 30 days through the SFM with funds not immediately taken up by importers being sold to CBN at SFM-reflective rate to accrete genuine national foreign reserves. Such last resort market-clearing purchase of surplus forex by CBN shall attract payment of the regulatory commission.
With respect to forex demand, the forex buyer (importer) would pay the market-reflective exchange rate (in the SFM) plus the regulatory commission. Additionally, in obedience to FG sovereign responsibility to protect the economy for the general good and the right to impose and collect tax, the importer would pay to FG customs duty and any levied FAT at variable rates depending on the item being imported in both cases. For ease of collection, the customs duty and FAT would be paid through the DMBs. To checkmate dumping, suppliers’ prices of goods imported with funds not sourced through the SFM should be duly verified and their importers should also pay the applicable customs duty and FAT.
Clearly, there was no economic basis why CBN has turned its back for four decades till date on the best practice DMB-based trading in the country’s pooled forex earnings while instead operating the extremely injurious mongrel exchange rate markets system where, like tail wagging the dog, the I&E forex window, BDCs and the black market have orchestrated an ever-depreciating naira exchange rate and even instigated recurring naira devaluations.
Therefore, the CBN should begin to implement the single forex market system without further delay. Until and unless that happens, the volatile macroeconomic environment will not end, the attendant harmful accompaniments will persist and the country will sink deeper and deeper as the poverty capital of the world. The Federal Government should embrace best practice fiscal and monetary procedures now.
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