Hey, have you read the latest CBN directive on remittances? If you haven’t, we’ll tell you more about it and the influence of IMTOs on foreign currency exchange rate in Nigeria.
Quick one: The receipt and administration of diaspora remittances into Nigeria kicked off on December 4, 2020, as directed by the Central Bank of Nigeria.
Aim: According to the apex bank, the new policy on IMTOs and their operations is targeted at providing a more convenient channel for Nigerians in Diaspora to remit funds back to Nigeria.
From what we read from the CBN guidelines, operators of Domiciliary Account in Nigeria will also have access to their accounts.
Not just that, the new policy also gives recipients of such funds in Nigeria two options:
1 To receive in Naira
2 To receive in the foreign currency as it is from the sender.
That aspect makes it interesting and reduces the exploitative tendencies of Nigerian banks when it comes to foreign currencies.
For over one decade, IMTOs have played significant roles in the foreign exchange rate in Nigeria.
The IMTOs have also made several billions of naira in the exchange market, sometimes to the detriment of Nigeria’s economic policies, the latest press release by the CBN points to that fact.
Who are the IMTOs?
IMTOs are International Monetary Transfer Operators who are certified by the CBN to help in remitting foreign currencies from overseas back to Nigeria.
They help Nigerians in the diaspora who want to send money to their loved ones back home, usually, the monies are in US dollar, Pounds, Canadian dollar, Euro, and other foreign currencies.
Importance of IMTOs to Foreign Exchange Rate
One may want to ask: Why do CBN issues licences to International Money Transfer Operators in Nigeria?
Some of the roles they play include:
- To liberalise the Foreign Exchange Market
- To ensure liquidity
- To make foreign exchange more readily available to low-end users.
History of IMTOs in Nigeria
24 years ago (specifically 1996), the first remittance programme by an IMTO was launched in Nigeria.
The launch followed the promulgation of a new law which exempted remittances from taxes.
It was a private arrangement between an IMTO, Western Union and First Bank of Nigeria.
At the time, First Bank was the only certified agent of the Western Union, though other banks served as sub-agents (under the first bank). CBN only played a regulatory role.
Today, virtually all Nigerian banks are dealing with Western Union and other IMTOs as agents. They handle remittances from Nigerian in the diaspora.
The programme enabled recipients of remittances to receive such funds over the counter in foreign currency or in Naira if they wished.
The success recorded by Western Union motivated other money transfer organizations to launch similar initiatives aimed at providing services to the growing number of Nigerians who want to send money to their family at home.
Issue of dollar cash availability in Nigeria
In order to solve the issue of dollar cash availability in Nigeria, some of the remittance operators working with the commercial banks decided to remit such funds to recipients in Naira.
The remittance was done at an agreed exchange rate between the banks and the IMTOs.
In 2016, CBN launched a licensing regime to guide the conduct and operations of IMTOs.
The license regime is to increase remittance inflows and improve the number of formal channels under which Nigerians in the Diaspora could remit funds.
This gave birth to the issuance of licenses to 65 International Money Transfer Operators in Nigeria for inbound remittances.
Influence of IMTOs On Foreign Currency Exchange Rate
1) If they hoard the foreign currency, liquidity will be affected.
2) They can cause artificial scarcity of foreign currencies in the market, thereby causing Naira depreciation in the parallel exchange market.
3) If foreign currencies are not circulated, the balance of payment could be impacted.
4) The activities of IMTOs could help reduce Nigeria’s dependence on external borrowing.
5) At the crucial time like this (COVID-19), the activities of IMTOs in Nigeria could make or mar the inflow of foreign exchange into Nigeria.
6) If they divert remittance which is foreign currencies, they could undermine CBN’s Foreign Exchange management framework.
7) For instance, the CBN estimated that the annual remittance inflow of foreign remittances is about $24bn, which could help in improving Nigeria’s balance of payment position.
Why is the CBN interested in the activities of IMTOs?
Some of the operators are smart and know how to jump CBN policies, that’s the apex bank is steeping in at a time when Naira depreciated to N500/1USD before closing at N475/1$ on Friday, December 4, 2020 at the black market rate.
Mr Godwin Emefiele, the governor of CBN in a statement said:
“We analyzed data on IMTO inflows into the country over the past year, and through our investigations discovered that some IMTOs, rather than compete on improving transaction volumes and create more efficient ways for Nigerians in the Diaspora to remit funds, resorted to engaging in arbitrage arrangements on the naira dollar exchange rate, which to a large extent resulted in a significant drop in flows into the country.
The apex bank found out that IMTOs were using unsafe and unofficial channels to are used to divert remittance flows meant for Nigeria.
What this means:
If your brother sends $100 from the United States to you in Nigeria, you will be able to collect such in the bank in the same dollar or Naira equivalent if you wish.
It also means you now have power and control over your money provided the inflow isn’t from questionable sources.
The policy is also significant because foreign currencies will be readily available for those who might want to use them for their immediate needs.
Scarcity will be reduced, forcing Naira to appreciate against foreign currencies. We’re seeing this playing out already.
For instance, less than a week the CBN news policy on remittances was implemented, Naira appreciated from N500/1$ to N475/1USD at the time of publication.
The influence of IMTOs on foreign currency exchange rate should be taken seriously by the CBN.
They could complement CBN’s efforts in liquidity or cause artificial scarcity, thereby causing depreciation of the Naira.
Most times, CBN makes policies to International Money Transfer Operators and banks in Nigeria without enforcing compliance.
It’s hopeful that the apex bank set up a special committee to monitor the activities of commercial banks regarding foreign currencies. It should enforce compliance because they play a big role in stabilising the economy.