CBN explains why it introduced cash for dollar scheme

In a series of tweets on the evening of the 6th of March, the Twitter handle of the Central Bank of Nigeria explained why it offered the  Naira4Dollar Scheme in favour of diaspora Nigerians who are seeking to inflow money into Nigeria.

We had a fair look at the tweets that we have annotated for our readers. Here it goes:

In a series of tweets on the evening of the 6th of March, the Twitter handle of the Central Bank of Nigeria explained why it offered the  Naira4Dollar Scheme in favour of diaspora Nigerians who are seeking to inflow money into Nigeria.

We had a fair look at the tweets that we have annotated for our readers. Here it goes.

1. Consistent with the global trend, Nigeria aspires to ensure that remittance flows and diaspora investments become a significant source of external financing.

What this means: The CBN is essentially admitting that foreign remittances (from Nigerians abroad) is important to boosting dollar liquidity. 

2. In an effort to reduce the cost burden of remitting funds to Nigeria by working Nigerians in the Diaspora, the #CBN has introduced a rebate of N5 for every $1 of fund remitted to Nigeria, through IMTOs licensed by the CBN. The Scheme will take effect on the 8th of March 2021.

What this means: The target of the CBN are Nigerians in the diaspora who they want to offer N5 for every $1 remitted to Nigeria. While the target is diaspora remittances, the people who will benefit are their family, friends, or loved ones who withdraw the money from the bank. 

3. We believe this new measure will help to make the process of sending remittances through formal bank channels cheaper and more convenient for Nigerians in the diaspora. #Emefiele

What this means: They opine that sending remittances through Nigerian banks ends up being cheaper and convenient. In reality, they appear to be targeting other channels of remitting money to Nigerians. For example, rather than pay excess transfer charges, you transfer the money through a Nigerian bank and then get an extra N5 for each dollar. However, they will have to contend with thousands of Nigerians who simply embark on peer-to-peer exchanges. Nigerians who live in the US or Canada often prefer to sell the dollars to Nigerian living in Nigeria but who need dollars abroad.

4. New FX policy will create an easier, more flexible, and more transparent, system of remittance administration, it will greatly enhance the benefits of diaspora remittances in supporting investments and growth in Nigeria. #Emefiele

What this means: This is essentially a promo pitch. It is all about competing for your remittances. They want you to route through the bank rather than the black market.

5. Policy on the administration of remittance flows is aimed at increasing the transparency of remittance inflows, reducing rent-seeking activities, and providing Nigerians in the diaspora with cheaper and more convenient ways of sending remittances to Nigeria. #Emefiele.

What this means: This is a veiled attack on other competing and probably more beneficial ways of remitting money to Nigeria. Increasing Transparency is basically allowing the CBN to track dollar inflows from Diaspora Nigerians and see which sectors it is flowing into.

6. PwC forecasts suggest that Nigeria’s remittance flows could reach US$34.89 billion by 2023. But this can only be accomplished if remittance infrastructure improves and if the right policies are put in place.

What this means: Interesting to note that the PWC forecast quoted by the CBN is based on data obtained from the World Bank and IMF, who in turn also base their data from the CBN and other sources. 

7. The use of reimbursements of remittance fees has been critical in supporting improved inflow of remittances to countries in South Asia and in improving their balance of payments position following the COVID-19 pandemic.

What this means: The CBN appears to have modeled this new scheme on similar policies in Asian countries. Bangladesh also has a similar scheme.