CBN reverses another Emefiele’s policy

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  • Directs oil companies to resume dollar sales to banks
  • To boost dollar supply, ease pressure on naira

The Central Bank of Nigeria has again reversed one of the policies of its suspended Governor, Godwin Emefiele, as the apex bank has permitted oil companies in the country to resume dollar sales to banks.

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According to a competent source in the oil and gas industry, the CBN gave the directive on Wednesday.

Emefiele had mandated the IOCs to only sell dollars to the CBN in the thick of a dollar crunch in 2020.

The CBN’s acting governor, Folashodun Shonubi, has been reversing some of the policies of Emefiele since he was handed the job by President Bola Tinubu who has started making moves to deliver the thorough house cleaning of monetary policy he promised Nigerians.

Oil and gas experts who hailed the latest move said International Oil Companies in Nigeria will get more naira for their dollar earnings and also inject dollar liquidity into the Investors & Exporters window.

They said the development indicated that IOCs are no longer mandated to sell their dollars to the CBN at the artificially low price at which they sold prior to the naira float last month.

“That leaves them with more naira for their dollars as they will now be selling at a rate that’s over 60 percent weaker than the previous rate.

“Allowing IOCs to sell dollars to banks will also help improve dollar liquidity in the I&E window, which is considered a crucial factor in luring foreign investors back to Nigeria.

“We expect this to inject additional liquidity into the Investors & Exporters window and help address the existing backlog of US dollar demand in the market,” a source familiar with the matter said.

“For the IOCs, they must be heaving a huge sigh of relief knowing they can now get more naira for their dollar earnings,” an oil and gas industry source said.

Since floating the naira and ending years of a hard currency peg that drained dollars from the economy and spooked investors, the CBN is now focusing on boosting dollar supply to help ease the pressure on the naira which lost over 60 percent of its value in one fell swoop following the long overdue reform.

The naira gained 1.2 percent at the I&E window on Wednesday. Total foreign exchange turnover was up 20 percent to $89.37 million from $73.86 million worth of trades, according to data from FMDQ.

The IOCs were forced to sell the dollars at an artificially propped official rate that was more than 50 percent stronger than the more market-reflective parallel market rate.

It was one of the curious moves made by Emefiele which though was intended to keep dollars flowing, ended up draining the market of the greenback and knocking investor confidence.

“It will take a lot of undoing the harmful policies of the Emefiele-led CBN to get Nigeria back on track and this is one of many,” a foreign fund manager said.

“The 43 blacklisted items is another grey area that is undermining confidence in the CBN’s new currency reform,” the fund manager who used to invest in Nigerian equities and bonds before he exited in 2020 said.

On June 18, 2023, the CBN had announced the removal of cash deposit limitations on domiciliary accounts, granting account holders the liberty to withdraw up to $10,000 per day.

The development also marked a significant shift in the nation’s monetary policy, allowing individuals greater flexibility in managing their funds held in domiciliary accounts.

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The CBN had made this disclosure in a press statement after deliberating at an extraordinary Bankers’ Committee meeting.

The new directive provided further guidance to banks on the operational changes to the foreign exchange market.

The bank had announced the unification of all segments of the Nigerian forex market, collapsing all windows into the Investors & Exporters window.

According to the press statement signed by the CBN’s director of the banking supervision department, Haruna Mustafa, the meeting was held to discuss the implementation and implications of the policy changes for the banking public.

“These policy changes aim to promote transparency, liquidity, and price discovery in the FX market in order to improve FX supply, discourage speculation, enhance customer confidence and ensure overall stability in the FX market.

“Ordinary domiciliary account holders shall have unfettered and unrestricted access to funds in their accounts.

“Domiciliary account holders are permitted to utilize cash deposits not exceeding USD$ 10,000 per day or its equivalent via telegraphic transfer. DMBs shall provide returns to the CBN including the “purpose” for such transactions,” the bank said.

It also said cash deposits into domiciliary accounts would no longer be restricted, subject to deposit money banks conducting proper due diligence and adhering to the spirit and letter of extant laws and other relevant rules and regulations.

The CBN said all visible and invisible transactions (medicals, school fees, BTA/PTA, airline, and other remittances) were eligible for the investors’ and Exporters’ (I & E) window.

It directed banks to ensure expeditious processing of all eligible invisible transactions on behalf of their customers using the applicable rate on the official window.

The apex bank said it would prioritize orderly settlement of any committed FX forward transactions to further boost market confidence.

It also said it would normalize its CRR maintenance processes and ensure equity in its implementation across the banking industry.

Prior to this announcement, individuals with domiciliary accounts faced limitations on the amount of cash they could deposit and withdraw, hindering international transactions.

At the time of filing this report on Thursday, the Director, Corporate Communications of the CBN, Isa Abdulmumin, was yet to respond to the latest directive.