Last updated on August 26th, 2022 at 03:02 pm
Summary: A Federal lawmaker is proposing a bill to force the CBN to close all domiciliary accounts in Nigeria as one of the measures to make the Naira regain its value. Can the implementation of such economic advice make $1 to N1? We examine some of the implications of stopping Nigerians from operating dom accounts
Every Nigerian knows that something is wrong with their economy. The price of garri has gone up, inflation has hit prices of the consumables. If you ask a market woman, she is likely to tell you that dollar is the cause.
There is economic meaning in what they say, the effect may not be direct, though, the fact is Nigeria is an importation economy, the effect of which forces a change in the price of goods that are locally made.
But a Federal Lawmaker representing Eti-Osa federal constituency of Lagos State at the National Assembly says he’s warming up to sponsor a bill that will compel the apex bank convert currencies in domiciliary account into naira.
Honourable Ibrahim Obanikoro also said it wouldn’t be out of place to compel the CBN to cancel the operation of domiciliary accounts by Nigerians.
His advise came as the naira recorded its greatest low in history as it exchanges for N580 against $1 on Wednesday, September 29, 2021, while the official rate remained at N411/$1 at the official rate, in one of our black market rate reports
He had said,:
“I am not the CBN Governor, but at this moment, I’m of the opinion that CBN should mandate that all dom accounts be closed for the next 12 months.
Let’s see the effect on the Naira. After all, you can’t go to any of the Western worlds and open a foreign currency account.”
According to him, the closure of dom accounts would make the naira regain its lost glory against major currencies in the market.
Economically, how sound is his move? Would the closure of dom accounts increase the value of the Nigerian currency at the foreign exchange market? Severally, the apex bank has had to issue a statement that it had no plan to convert dom account to naira.
Implications of Closing Dom Accounts On Nigerian Economy
- Exporters Will Find It Difficult To Get Paid
- It Will Worsen Forex Scarcity
- It Will Cripple Inflow
- In Will Affect Foreign Direct Investment (FDI)
- Diaspora Remittances Will Be Affected
First, any move to save naira from hitting N1000/$1 should be long term. It should be to stop the economic retrogression Nigeria has found itself.
The advice by Mr Obanikoro creates an impression that naira is competing with the USD. For now, Nigerian economy, though with abundant resources to be the best, it isn’t blessed with good leadership.
A part of the tweet which claims that no part of foreign allows operation of dom account is false, it isn’t true. It isn’t popular because global trade is mostly done in the US dollar.
Taiwo Alao concur in his Tweet:
“There are foreign currency accounts opened in different countries of the Western world. The issue with the forex rate in Nigeria is simple. CBN is trying to fix a price for a currency it does not have in abundance. You cannot control that which you are not in charge of”
The effect of closing dom account as a measure to increase the value of Naira will be enormous, some of them are discussed below:
Exporters Will Find It Difficult To Get Paid
The lawmaker fails to realise that international traders, most especially exporters in Nigeria are paid in forex, largely with USD. The closure of dom accounts in Nigeria would mean they won’t be able to receive their funds.
Some Nigerians, who described his tweet as reckless said it wasn’t brilliant that such could come a lawmaker. One of them is Ufuoma:
“With due respect sir your tweet is reckless. What happens to those who legitimately earn in dollars? How do exporters get paid their proceeds?
If you don’t have a solution please keep quiet
It Will Worsen Forex Scarcity
On July 27, the apex bank said it could no longer sell forex to over 5,000 Bureau De Change operators due to some sharp practices by the operators. Scarcity hit the market and the naira has continued to fall daily because of demand is higher than supply.
The CBN has the power to implement monetary policies it deemed fix can cause a positive change in the economy, but executing advice by Obanikoro would be devastating.
To Dr Sotola, closing Dom account will not stop naira from failing. The Dom account impact on naira situation may be less than 5% (CBN will have more precise data), the elephant in the room is Nigeria is not earning enough dollar as against the demand.
“Closing Dom account may further worsen the naira situation. For instance, people earning in $ thru Dom acc are helping as they are bringing in $. If you force them to close the account, they will find alternative. But how will closing Dom acc improve $ supply or reduce demand?”
It Will Cripple Inflow
How would Nigerians in diaspora remit funds back home? What about inflow of forex from foreign buyers who engage in international trade with Nigerians merchants?
Kimi Regal says it would a calamitous mistake to think that closing domiciliary account would solve the issue of naira bad exchange rate.
“If dorm accounts are closed for 12 months. What happens to the inflow coming in from those who transact business internationally and need these accounts for payments.
“You want to cripple the inflow and ultimately further cripple the already crippled economy. You are too smart.”
In Will Affect Foreign Direct Investment (FDI)
Another implication of closing dom account is that FDI will be affected and Robert Thas John is asking:
“ When you close the domiciliary accounts will investors put money on a plane to bring to Nigeria? Or route their money elsewhere? People earning forex will keep the forex outside the country. Naira is not an international currency, foreigners won’t jump through hoops to pay us.”
Is Nigeria thinking about how to increase export in any way? In one of our guides, we proffer 10 solutions on how Naira can regain its value.
And Oloke says, that’s the way to go, is to increase export ”Well, demand and supply is what gives any currency value, what Nigerian should be worried about is how to increase export and reduce imports. Nigeria is a consumption economy thus we have a large GDP, back to the basic, + in export means + in demand for naira = + in naira value.”
It’s obvious that the successive governments in the United States have consistently put America first in their economic policies which is one of the reasons USD is recognised as one of the global means of trade today, it isn’t a day job. If we’re ready, government needs to review its policies, the leadership must set good example.