CBN explains forex restrictions

Foreign currency restrictions will be lifted only when reserves have been built up to an appreciable level, the Central Bank of Nigeria (CBN) has said.

Addressing journalists in Abuja at the weekend on the recent decision by Deposit Money Banks (DMBs) to limit the use of their debit cards overseas, the CBN’s Director, Monetary Policy Department, Mr. Moses Tule, said the restrictions will be lifted “as soon as we build up reserves; when you see us building reserves to $50 billion, $60 billion, $70 billion, $200 billion or more”.

Tule added: “The moment we begin to build reserves, we expect that just as this restrictions were not there most of the restrictions will be lifted, but for now every hand needs to be on deck. We need to earn foreign exchange. As a country you can improve your business processes in order to export and earn foreign exchange and that is what the country is calling on patriotic Nigerian businessmen to do.”

There have been criticism of the restrictions and banks’ decision to limit the use of debit cards overseas.

Explaining the build-up to the debit card restrictions by the DMBs, Tule said: “The limitation on the use of debit or credit cards outside the country was not a limitation that was placed by the CBN. They were restrictions that Deposit Money Banks (DMBs) placed because they have to settle whatever transactions you make with your debit cards with their corresponding banks in foreign currency and if the banks do not have the foreign currency to do that then you create a liability on them which will crystallise on their balance sheets.”

The CBN, he said, sympathises with Nigerians who are unable to use their debit cards overseas, but the CBN, Tule said, cannot stop it. His words: “At this point, we are in in this country, the obvious answer is that the CBN cannot stop what the banks are doing now and the reason is very obvious. Our priorities as a nation for the allocation or use of foreign exchange is 1) for the settlement of matured LCs (letters of Credit) that have been opened for importation; 2) for the importation of petroleum products until such a time either when we have our refineries fully operational and we are not in a position to import fuel again to ensure that the wheels of economic development continue turning and running  and 3) for the importation of raw materials.”

By the time the CBN meets these conditions “given the level of current flow into the reserves, by the time we meet these three priority areas, you will discover that people who are using their debit cards overseas for shopping can never be on the priority list. We would then go back to the point where the foreign exchange, which is a stock dries up that is the position we are in today.”

The CBN director added: “Whatever decisions banks take with respect to allowing their customers use debit cards overseas, those are strictly business decisions. They are looking at their balance sheets, they are looking at their capacity to settle with their corresponding banks the obligations that will crystallize on their balance sheets, rather than open themselves to the people who are out their shopping in foreign currencies, using their debit cards for one thing or another.”

The CBN official admitted that they understand that not all the demands will be for shopping, but “we have seen that the reserves are not there and what we have; we have to use essentially for the purposes that will keep the wheels of the economy running”. “We have to produce for export we can’t continue to depend only on the export of crude oil,” he said.

Tule noted that “the banks have not said customers do not have access to their dollar accounts; what they are saying is that if you deposited cash, you can ask for cash; if the deposits in your account were by way of transfer and you want to carry out a transaction you can only transfer; that is what they are saying.”

The CBN, he said, frowns at the situation where “you benefited from cheap foreign exchange, bought imported raw materials by using the official channels and you brought in your proceeds, now you want to go and draw cash so that you can sell them in the parallel market, we will not allow you because first you generated the proceeds by accessing the official window, which was more cheaper so we wouldn’t allow you”. “These are some of the reasons behind our saying that we placed those restrictions on even people who had dollar export domiciliary accounts background but they can have access to these accounts if they want to import raw materials and that is what we have stuck to.”

Shedding more light on the reason for the forex restrictions, Tule said that “the currency of use in this country is the naira, not the dollar; you cannot expect carrying out dollar transactions over the counter in an economy whose currency is not dollar-denominated we must learn to respect our systems and laws that govern our system.”

The law, he said, clearly states that “your deposits are in naira; if you have a domiciliary account the proceeds, if earned outside the country, you can receive foreign currency deposits into it or if you have earned foreign currency the foreign currency can be deposited in that account. I don’t see you carrying out a transaction and earning foreign currency within Nigeria; you will earn naira. If you had a business that earned foreign currency it will come into your domiciliary account by way of transfer; it is not going to come into your account by way of cash. If you have got cash deposit in your domiciliary account, there are only two ways about it, a) either you’ve patronised the black market or you’re doing some short changing and that’s against the law. The CBN would not like to sit and watch our people using the legitimate channels of the financial system to promote illegality.”

Asked if the CBN will stop funding bureau de change (BDCs) and if it is considering devaluing the naira, Tule said: “From the policy perspective, very hard choices will have to be made and we will make them for the sake of the country and that is the bottom line of that budget speech delivered by President Muhammadu Buhari, the decisions are not to harm or hurt anybody, the decisions would have to be made but it would not be to the detriment of the generality of Nigerians so we must ensure that we promote the welfare of the average Nigerian.”

Whatever the nature of the hard decisions that policy makers will take in 2016, the CBN, Tule said would not shut down BDCs because “when you make policy decisions that involve the public you must protect the employment those agencies are generating, whether you like it or not the BDCs the way they’re currently run one way or another generates some level of employment we don’t want to take decisions that will increase the unemployment situation in the country.”

“It is not as if we are oblivious of some of the things they’re doing we have placed a whole regime of sanctions on erring BDCs in the past, we will continue to fine tune the regulatory mechanism around BDCs, but the button line is that we shouldn’t take decisions that will worsen the situation for policy decisions, you must always be careful when you take them even if you want to take such decisions you must be careful when to take it you must weigh the fundamentals and all the issues round you so we’re looking at the entire regime of BDC operations, the policy regime around it and the regulatory framework; we are fine tuning it and will continue to fine tune it but I definitely assure that we definitely are going to have better BDCs we are beginning to see the example of Travelex that is the way it will go,” Tule said.

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