Why Nigeria Accepts USD for Remittances
Oil revenue and diaspora remittance are the two factors that bring US dollars to the Nigerian economy and significantly contribute to the country’s Gross Domestic Product (GDP). In March 2021, Vice President Prof. Yemi Osinbajo mentioned that around 70 percent of diaspora remittances to Nigeria are for family support, and the remaining 30 percent are allotted for investments. The diaspora remittances even surpassed the country's oil revenue as high as 6 percent of the country’s GDP for several years. When USD is scarce in Nigeria such as the case right now, importers use more naira to buy a few available dollars at high rates. The costs will then be transferred to the shoulders of the customers.
It is no wonder why sending money to Nigeria is very important to citizens outside the country. That way, they can send financial support to their families back home and hopefully alleviate them from poverty. Moreover, sending money back home allows Nigerians to invest money in different businesses in the country. US dollars is an important currency and when money is sent to Nigeria in USD, the receiver benefits because of higher currency exchange. Moreover, when the country receives a lot of US dollars, the government will have more funds to invest, even in USD stocks and other international trade.
Changes in Diaspora Remittance in Nigeria
In 2020, the Central Bank of Nigeria (CBN) issued circulars amending and clarifying the receiving of diaspora remittances in the country. Under this new policy, remittances through International Money Transfer Operations (IMTOs) will be received in US Dollar currency through designated banks. This new arrangement in receiving money from abroad aims to improve the receipt and administration of money into the country.
Here are the reasons for the adoption of the new policy:
IMTOs resorted to arbitrage arrangements on the Naira-dollar exchange rate instead of competing to improve the transaction volumes and creating better ways for Nigerians outside Nigeria to send money back home.
The closing of Niara's general ledgers prevents the unsafe use of unofficial channels, which also supported the diversion of remittance flows meant for Nigeria.
This new policy allows the proper accounting of foreign exchange (forex) inflow in Nigeria.
In December 2020, another circular was released wherein IMTOs, and Payment Service Providers (PSPs) should ease all local currency transfers regarding foreign remittances. Mobile Money Operators (MMOs) should disable wallets from receipt of funds from IMTOs. The Nigerian Interbank Settlement System (NIBSS) will be managing all foreign remittances to improve the visibility of foreign remittance flows. In January 2021, this circular was again reiterated so that all IMTOs would follow the new policy.
The CBN Naira 4 Dollar Scheme
Because of the new foreign exchange policy coupled with the COVID-19 pandemic has resulted in a significant drop in diaspora remittance, especially in the first quarter of 2021. The CBN introduced the “CBN Naira 4 Dollar Scheme” incentive to encourage continuous remittance to the country. Under this scheme, recipients of diaspora remittances will be given five Nigerian nairas per one dollar that they will collect as cash across the counter or through domiciliary accounts.
Initially, this incentive arrangement was only from March to May 2021. Still, in May, the CBN extended the payment of N5 bonus for every $1 remittance to encourage more US dollars to enter Nigeria.
Most of the time, when you send money to Nigeria, the amount will go directly to the recipient’s bank accounts. If your family back in Nigeria does not have a bank account, you can still send them money by entering their mobile number and several ID links. The details will be forwarded to you and your receiver so they can retrieve the money from commercial banks safely and seamlessly, plus avail themselves of the N4 Dollar Scheme.
The extra Nigerian Naira that will be received by the families of Nigerians outside the country will be of great help not only in providing extra cash for the necessities of these families. They can also use these to fund their investments in the country so that they can build their wealth within the country.
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