Of recent, several social media accounts have been peddling the rumour that the Central Bank of Nigeria (CBN) is planning to convert the Domiciliary account of Money Deposit Banks Customers into Naira.
CBN refutes the rumour
In a statement on Saturday, CBN’s Director of Corporate Communications, Osita Nwanisobi, said the purported directive was not from the bank. According to him, the nation’s financial regulator is aware of a circular with a fake CBN logo issuing the said directive to Deposit Money Banks (DMBs), International Money Transfer Operators (IMTOs), and members of the public.
Nwanisobi stressed that the CBN did not plan such a line of action and would have no reason to make a decision of such, saying the directive was intended to cause panic in the foreign exchange market.
“We wish to reiterate that the Bank has not contemplated, and will never contemplate, any such line of action. The speculation is a completely false narrative aimed at triggering panic in the foreign exchange market,”.
The CBN spokesman, therefore, appealed to domiciliary accounts operators and members of the banking public to go about their legitimate foreign exchange transactions. He asked them to be mindful of misleading circulars, adding that any circular issued by the bank would be posted on its website. The CBN spoke person warned against the unauthorized use of the CBN logo, saying appropriate authorities were already making efforts to apprehend those behind the misleading circular.
Why the rumour ruffled the public
This rumour and malicious statement became palpable because of the dire strait the country has found itself particularly with the acute shortage of foreign currencies. The slow global economic growth due to the pandemic has significantly affected the foreign income of the country. Crude Oil sales the major source of FX earnings for the country have plummeted hence the supply shortage. Nigeria also had an increasing negative balance of International trade as a net exporter of goods and services.
The arbitrage and round-tripping opportunity that exists within the parallel markets is also a major loophole that has moved fx into the wrong quarters in the country.
Implications of the purported action
A decision to convert people's domiciliary accounts into Naira will surely backfire as it did in Argentina a few years ago when the country had a shortfall of foreign currencies and annexed private citizens' domiciliary accounts. The decision dragged Argentina into financial turbulence that affected her economy negatively.
The CBN should be wiser and not get its fingers burnt in such a controversial financial market strategy either now or in the future, not even in a hyper-inflation period the country has found itself. Such a desperate action by a banking regulator will break the heart of local depositors, the banking stakeholders, unsettle the financial markets, and scare foreign investors away from the country.
The operation of foreign currency in Nigeria is guided by the Central Bank’s Foreign Exchange Manual which stated that “Foreign currency domiciliary accounts may be opened by Citizens of Nigeria, Foreign nationals and Foreign/indigenous companies.” Nowhere in the manual does it actually state that the CBN has powers to convert it into naira or suggest it may consider doing so.
It is strongly believed and recommended that the CBN should not look at the option of converting private citizens' domiciliary accounts into Naira as part of the solution to the lingering crisis of scarce and short supply of current foreign currencies in the country.
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