The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, Decree 17 of 1995 unofficially birthed Dollarisation of the Nigerian economy.
The Act created the Autonomous Foreign Exchange Market, listed the instruments of transactions in the market as well as the sources of foreign currency for the transactions.
The instruments include foreign bank notes, foreign currency, travellers’ cheques, bank drafts and mail or telegraphic transfers.
The stream of foreign currency inflows into that market is varied and more or less open-ended. A mention of same here is necessary.
They are ‘’domiciliary accounts, foreign currency held by Nigerians returning home from places outside Nigeria and foreign national resident in Nigeria; agency commissions, professional fees, other forms of invisible earnings; non-oil export proceeds earned by exporters of Nigerian commodities and foreign currency held by Nigerian citizens resident in Nigeria’’.
Additional sources include; ‘’foreign currency imported by foreign nationals to purchase goods in Nigeria; foreign currency imported or held by foreign embassies, high commissions and international organisations from external sources; foreign currency imported by foreign tourists into Nigeria and foreign currency provided by the Central Bank among others’’.
It is also this statute, decree 17 of 1995 that established the Bureau the Change by virtue of its section 5 that empowered the CBN to appoint authorized Dealers in Foreign Exchange. This law has turned Bureau De Change operations to a contraption to the extent it has diminished the functionality of the Naira even as it enthroned the US dollar as the choice currency in the Nigerian economy.
It not only loosened the ends of both the supply and demand of the major international reserve currency but also permitted governments indirect support of actions that are inimical to genuine operations of a parallel foreign exchange market.
Section 1.3 of the CBN’s Guidelines for Bureaux De Change (2002) mainly talked about the operators dealing with small scale foreign exchange without defining the meaning of small. It also suffices to say that while section 7.2 of the Guidelines expressly allowed the Bureau De Change to get its fund from autonomous sources its section 8 clearly identified ‘’private sources or such other sources, including the IFEM, as the Central Bank of Nigeria shall define from time to time for the purpose of Business Travel Allowance [BTA] and Personal Travel Allowance [PTA]’’ as the major routes of foreign currency inflow of these operators.
What these provisions imply is that the operators are required to look for foreign currency wherever they can find it to complement the official allocation by the Central Bank through the IFEM. This is certainly nothing but ‘official partial dollarization’ which at best would give a boost to the black economy while distabilising the open economy through exchange rate manipulation.
This unrestrained liberalisation of Nigeria’s Foreign Exchange Market is certainly connected with the ‘conditions and condionalities’ of accessing foreign loans and aids as pushed forward by the neo-liberal International Financial Institutions consequent on the economic shock which the nation was experiencing in the 1980s and 1990s.
In an intrinsically the same way, it is difficult to exempt the Central Bank of Nigeria from an overt support for dollarization when it benched-marked payment to beneficiaries of diaspora remittances in US dollars. In its Circular dated 3rd December 2020, it warned Banks and International Money Transfer Operators (IMTOs) against paying beneficiaries of diaspora remittances in Naira despite the subsisting directive that prescribed payment in foreign currency, preferably in US dollars only for the same to be reversed in ‘Naira for Dollar Scheme’ announce in March 2021.
The provisions of both the original Guidelines on International Money Transfer Services in Nigeria of 2014 and its Revised edition of 31st January 2024 provided Naira as a payment option for Diaspora remittances. Although these provisions may be targeting on boosting foreign exchange liquidity, they are certainly counterproductive to the economy in the long run as they expose the Naira to an undue competition with a preferred foreign currency.
The bottomline of those hasty and poorly articulated Foreign Exchange policies are encountered in every sector of the economy as they become permanent features of our economic life.
It is no longer a news that many Internal Airlines have been demanding payments in US dollars and where they do not do so, they strictly benchmark their fare on US dollars even when the purchasing power parity of the Naira should have defined the baseline pricing.
It has also been reported that some foreign embassies quote and collect their visa fees as well as other payments in US dollars, an action that violates one of the fundamental principles of diplomatic relations.
It has also become a common experience for landlords in high cultural pretentious areas to demand rents in dollars. This happens in cities like Lagos, Abuja, Porth Harcourt, Kano and even Kaduna. Some rated hotels, interestingly tacitly quote their rates in US dollars with the Naira as a payment option.
Recently, a newly established university located in the Rivers state, Wigwe University advertised for admissions and quoted its school fees and associated charges only in the US dollars.
There was no mention of Naira as payment option anywhere in that advert which has been on for more than six months. This is simply an escalation of the damage which the proprietors of some private secondary schools have been doing to the Naira.
They not only operate foreign curricula but, in many cases, also demand and receive their fees in the US dollars. Some of them don’t even have the Naira as a currency of payment option.
It suffices also to say that Nigeria’s brand of federalism is inherently characterised by multiplicity of budgets. The implication of this is the obvious bloated fiscal operation that causes huge leakages from both revenue and expenditure sides while the fiscal structure has simplified ways and means of pulling out those proceeds of corruption from the system.
This along with several other shenanigans of the black economy sees the Naira as a weak currency to store the loots.
This way the US dollar has become a preferred currency for the criminal minds within the power corridor as that ensures that a billion Naira bribe could easily be starched away with little difficulty. Naira cannot server that purpose. The Dollar can.
The above picture captures what may be regarded as the primary demand factors of the dollar in the black economy and the parallel market in Nigeria.
Apart from them we also have the importers (genuine or smugglers) and others who make either sundry payments or services transfers abroad who also go for the dollar certainly due to the difficulties associated with accessing the same from the official source.
But where there is demand the existence of supply in inevitable. Yes, you cannot dollarize the economy without a cheap access to the dollar. In fact, in the language of the orthodox free market economist, Jean-Baptiste Say, ‘supply creates its own demand’.
But interestingly the government complemented the market by creating the supply channels of dollar as mentioned earlier.
Outside the official sources we also have; undeclared export earnings, smuggling of the currency into the country, surreptitious activities of the banks, banking executives and some other players in the financial services industry, diaspora remittances outside the official channel, speculators among others.
With the possible exception of the last two, the remaining sources of the dollar in the black economy and the parallel market are within the purview of public policy. In other words, a well-articulated fiscal policy and monetary policy have the capacity to block illicit flow of dollar in the economy.
This way it could be said that dollaristion of the Nigeran economy is the result of bad fiscal and monetary policies. It feeds on policy disconnect or the non-existence of a sound framework of containing the excesses of the operators in the black economy.
It is fundamentally the offshoot of failure of central banking in the country. It has been given impetus by ineptitude on the part of economic intelligence units and enforcement agencies.
It must be unequivocally stated therefore, that we need to repeal and replace the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, Decree 17 of 1995 or cause a comprehensive revision of the same.
That should also impact severally on the Guidelines of Guidelines for Bureaux De Change operations. You cannot have a million and one operators in the parallel Foreign Exchange Market and at the same time expect that the system will not be hijacked by criminal elements especially when the process of granting licenses is heavily corrupt.
Unless and until some of these decisive steps are taken to regulate the Foreign Exchange Market, exchange-related shock and dollar-scarcity-triggered instability will be continually transmitted to the Nigeria’s macroeconomy.
