The new guideline by the Central Bank of Nigeria [CBN] on foreign money transfers provides a big strategic step forward for the bank in dealing with the many rampant abuses in the foreign exchange market. Before now, our foreign exchange market had degenerated to a level of a cash and carry market where both Nigerians and foreigners exchange large volumes of cash over the counter and cart away foreign exchange from the country on a continuing basis.
The development of large volume deals in the parallel market has opened large channels of illegal flow of official funds into the black market. Much of funds allocated to bureaux de change end up being sold in large volumes to people who readily transfer them out of the country. This has become a major source of capital flight. It is also a source of worry in these hazardous times of money laundering and possible terrorist funding links.
The new guideline requires that a foreign funds transfer should now be made out of an existing naira denominated account. This will make it possible for the transferor to be well known customer of the financial institution with traceable means of livelihood and identifiable business engagement producing the funds being transferred. CBN should follow the measure up with serious sanctions such as seizure of operating licences of defaulting financial institutions to ensure full compliance.
Closing the loopholes of losses in the foreign exchange market has been long imperative for a nation that has been under intensive demand pressure for the dollar. It is a long overdue step in the right direction by the apex bank that has witnessed a sustaining fall in our external reserve. While the bank has sacrificed enormous foreign exchange resource lately to intervene in the foreign exchange market, the anticipated benefits of this intervention in terms of stronger growth of the manufacturing sector are not forthcoming.
While the manufacturing sector is said to account for the bulk of foreign exchange bids in the foreign exchange market, there is no corresponding improvement in output and employment in the sector. It has become necessary for the CBN to also introduce new checks and balances that will ensure that our economy receives full value for every dollar exchanged for the naira. This will in itself rev up the value of the local currency, reduce price inflation and make the job of liquidity management much easier for the bank.
We believe that with the step taken by the CBN in foreign money transfers, the bank in getting on course towards the ultimate objective of lowering interest rates. The pressure in the foreign exchange market stands in the way of stimulating economic growth through monetary policy easing. An early step by the new governor of the bank in sanitizing the foreign exchange market raises optimism that a low interest rate regime is after all achievable in our economy.
We urge the CBN to sustain the new measure, monitor its compliance effectively and take further steps where necessary to reinforce it. We also call for similar measures that will close the many loopholes for foreign exchange losses, reduce pressure in the foreign exchange market and redirect the domestic economy towards increasing output with growing job opportunities. The low interest rate objective of the new CBN leadership is the key strategy to accomplish these worthy goals. It is the prerequisite for President Goodluck Jonathan’s industrial revolution dream to come to fruition.