Excerpts from ThisDay's interview with the CBN Governor

Back to foreign exchange management by the CBN, the recent decision by banks not to accept dollar deposits seems to be causing a rumpus in the market. Was the directive given by the central bank that commercial banks should reject dollar deposits?

The decision by the banks to stop collecting foreign currencies into their vaults was not taken by the CBN, but we whole-heartedly support that decision. First of all, Nigeria is the only country where you find that people go to banks and deposit foreign currencies in banks other than the local currency of that country. What we need to do is to remain nationalistic and accept only our currency as our legal tender.

You cannot go to the United States where the dollar is spent and try to pay pound sterling into an account, because you will be arrested. Neither can you go into the United States and carry Euros into that economy and tell them to pay it into an account for you; you will be arrested. The same way you cannot go to the United Kingdom where pound sterling is their unit of currency and then you carry dollars or Chinese Renminbi and try to pay into an account, because you will not be arrested.


So when you look at why the banks took the decision, the banks decided to take that line of action because they felt that the level of foreign currency that had in their vaults was above the optimum level that they could manage. Let me put it to you this way: when a bank accepts naira cash and it has excess cash in its vault, what it does is to take it to the CBN and the CBN gives them value for it. But when a bank has excess dollar cash in its vault, what is it going to do with it? If they take it to the CBN, what is the central bank going to do with it? So what you will find is that if they continue to accept it from bank customers, it becomes a useless piece of paper in their vaults because it is a non-earning asset. So that is why you are not going to blame banks that say they have excess foreign currency in their vaults and do not need it again because they don’t have a mechanism through which they can dispose of it and get real value.

Don’t forget, when you deposit your dollars into your domiciliary account in a bank and you go abroad and spend money using your electronic cards, that bank uses its own wired electronic money sitting in its correspondent bank abroad to meet your obligation, whereas your dollar cash is sitting in its vault. So that bank has to have a way of transferring that money from its vault into an electronic format to clear the obligation created abroad. As a result of currency substitution and the high incidence of people trying to hide their illicit wealth, the level of foreign currency in our system has ballooned such that the banks can’t cope with it again. That is why we are where we are today.



But didn’t the banks approach the CBN to help them transfer the foreign currency abroad, why did you reject that request?

It was because what we found out was that the amount was unduly high and we had a reason to believe or suspect that there were some money laundering activities involved and that the central bank will not be party to money laundering activities that are being perpetrated by people who got their wealth illegally or people who are involved in currency substitution.


But how did this foreign currency accumulate so much in the banking system. Are banks not supposed to report all cash deposits in excess of $10,000 to the authorities?

Your guess is as good as mine. I don’t know how it ballooned to that extent. But the point is that because we have an open economy, there is a tendency that people would have been carrying cash in and out of the country and we are in a situation where we have seen more of the cash coming in than going out. In any case, we do not allow people to carry foreign currencies exceeding a certain amount in and out of the borders any longer. The security agencies are monitoring this aggressively and I suspect that is why it appears that there is a glut of it within the system.



Approximately, how much of this foreign currency do we have in the banking system?

I don’t have the exact amount, but I believe it is over $1 billion cash.


By rejecting foreign cash deposits, is the CBN not tampering with people’s ability to operate domiciliary accounts?

No there is no attempt to tamper with people’s ability to operate domiciliary accounts. But what we are saying is that we would support the banks when they say they would not accept dollar deposits in domiciliary accounts.


So for those that need to transfer monies for school fees, medical bills and other legitimate transactions, how do they do that?

Our foreign exchange regulations provide how people can carry out their legitimate businesses, including payments of school fees, mortgages and other bills. All you need do is to go to your bank, fill the Form A and support it with the relevant invoices and the dollar will be wired to wherever you want it wired for your legitimate transactions. Don’t forget, before now, we always had BTAs and PTAs and what we did was to complement it with the activities of the BDCs. We made it more flexible, so we have BDCs carrying out retail transactions for those who are travelling and want to pay medical bills. What we are saying is that these transactions must be done within the ambit of the law. The problem we have is not people who want to carry out legitimate transactions, either for payment of school fees and others, but we have certain people who are involved in currency substitution. There are certain people who got their wealth illegally and are thinking of the best ways to launder these funds. That is the main issue.



But there are some people who also consider the dollar as a better store of value?

Every country has its own legal tender. In Nigeria, our legal tender is the naira. In the US, the legal tender is dollar, the UK has the pound sterling. So the citizens of that country are obligated to store their value in the legal tender of those countries. Let me put it this way, can you imagine if you choose to store your money in dollars and 170 million other people also choose to store their money in dollars, do you know what would happen to our legal tender? Do you know what would happen to the reserves of the country? So that is why it is not advisable for anybody to contemplate that the best way they want to store their money is in a currency that is not the legal tender of that country.



You also pointed out that there is no country in the world where citizens are not allowed to open other accounts apart from their domestic currencies and you cited the US, UK, among others. But some African economies do allow this?

I doubt if there are other economies that allow that and I am going to investigate that. But I am telling you that citizens of other countries are not allowed to operate domiciliary accounts. Nigeria is so free that people are able to do anything that they want to do. Go to South Africa or Ghana, their foreign exchange controls are far more stringent than what we have in Nigeria. I am telling you that it is not obtainable elsewhere.



So what happens to multinationals that bring in foreign currencies to sell in the market as autonomous sources?

It depends on the source. The multinationals must be bringing in those currencies for a purpose. Either it is capital importation, in which case they are bringing it in to invest in the country. So there are regulations guiding capital importation and what you do with it. For instance, the oil companies are exporters and the law allows you to open domiciliary accounts. You open a domiciliary account and what it allows you do is to receive the proceeds of your exports. When you receive the proceeds of your export, you are obligated to convert it to local currency. The latitude we have allowed was that after you have received your export proceeds and you want to make use of it to import eligible transactions, you are allowed to do so. But if you do not have any reason to import anything with the dollars you brought in from export proceeds from eligible transactions, you are obligated to convert it into the local currency by selling it in the interbank foreign exchange market.

http://www.thisdaylive.com/articles/emefiele-cbn-supports-banks-decision-to-reject-dollar-deposits/216373/ lalasticlala, Ishilove

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The most important thing is that the policy is in the interest of the country.

Good

I'm tired of all this Naira-Dollar tussle already.

http://www.barclays.co.uk/Otheraccounts/Currencyaccounts/ForeignCurrencyAccount/P1242557963858

This CBN Governor is a liability and doesn't understand what he's talking about. See a UK bank in the link promoting USD deposits. Does he think Nigerians are not sensible?

Cc: stagger

Can you see the form A , I was talking about on the other thread is what is been said by Governor of VBN here?

Hmmmm..

If this move should eliminate the use of domiciliary account, it is by far more preferable. Let our current account or at least savings account manager international transactions.

CBN governor is not proffering solution @ all.
Some multinational film still pay their staff salaries with US dollars,so how do u expect them to remit such fund now?He mention form A,which is for only payments for medicals,tuition fees,mortage etc.What about form M for importation?He never said anything about it.He his trying to block loopholes for money laundering or save the economy due to the high exchange rate,but this method is not the solution.
What he needs to do is to create a mechanism that all commercial banks will use to report every money laundered through them,and set up a team also in CBN to monitor all transactions done in USD in all commercial banks.This policy of his will affect nigerians who do legitimate business in dollars.

Ijebulogic:
http://www.barclays.co.uk/Otheraccounts/Currencyaccounts/ForeignCurrencyAccount/P1242557963858

This CBN Governor is a liability and doesn't understand what he's talking about. See a UK bank in the link promoting USD deposits. Does he think Nigerians are not sensible?

So the bank says you can deposit $ in the UK...so when you deposit the $, what do u think you can do with that money from that account?

Answer...absolutely nothing...you either withdraw it as $ o ask the bank to change it to £ for you

Pls let's be sensible and evaluate issues with patriotic dispatch rather selfish sentiments

walcolm:


So the bank says you can deposit $ in the UK...so when you deposit the $, what do u think you can do with that money from that account?

Answer...absolutely nothing...you either withdraw it as $ o ask the bank to change it to £ for you

Pls let's be sensible and evaluate issues with patriotic dispatch rather selfish sentiments

Patriotism does not equate ignorance. Please do not stray from the issues. The CBN governor said the following:
"You cannot go to the United States where the dollar is spent and try to pay pound sterling into an account, because you will be arrested. Neither can you go into the United States and carry Euros into that economy and tell them to pay it into an account for you; you will be arrested. The same way you cannot go to the United Kingdom where pound sterling is their unit of currency and then you carry dollars or Chinese Renminbi and try to pay into an account, because you will be arrested"

Please lets not waste time - the above statement is ill-informed and wrong. I've paid USD into my Barclays account in the UK several times; why wasn't I arrested? The CBN Gov. position comes with a weight of responsibility that requires careful and measured communication. The CBN Governor just needs to upgrade the capabilities of his advisors.

The CBN Governor by virtue of his standing, should be fully aware that over the counter forex transactions are very legal and possible in practically every country. If he isn't, then he is not worthy of that position.

If he is, then it means he lied. Comfortable in the fact that Nigerians are very gulible and will swallow anything just to be able to say Baba is working!!!