The Next Wave: Why Nigeria is rooting for the dollar

US dollars and Naira
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My theory is that IJGBs – our dear cousins and aunts returning briefly to Nigeria for the holidays – are overburdening our tiny roads by throwing their weights about town.

My theory is very baseless though and, honestly, we shouldn’t be picking fights with IJGBs knowing the crucial role they play in our economy.

Remittances from Nigerians in diaspora kept families and businesses liquid during the pandemic, and will be more indispensable as the country slips into a recession.

How do we get our faves to remit more please?

In this edition, we spotlight the Central Bank of Nigeria’s recent moves on diaspora remittances as a march towards harmonizing/tracking the inflow of dollars into the financial system.

But first, please subscribe to this newsletter if you are yet to. And find all previous editions here.


Make it rain, but in dollars

Three weeks ago, the Central Bank of Nigeria (CBN) published a two-page circular with a surprising update.

Basically, when someone abroad sends dollars to a beneficiary in Nigeria, the money will no longer be received in naira.

Beneficiaries are now to receive the remittance in dollars either in cash over the counter or in their domiciliary accounts. Each beneficiary decides what she prefers.

The notice was directly for CBN-licensed international money transfer operators – Flutterwave, Moneygram, RIA, Western Union, etc.

They are to ensure this new policy takes effect. International money transfer operators (IMTO) that keep paying beneficiaries in naira instead of dollars invite the wrath of the apex bank and may lose their license to operate.

Because a lot of the CBN’s recent announcements have appeared rushed and high-handed – for example, controversial punishments for failed direct debits – many people were uncertain what to make of this.

On December 16, CBN published a directive excluding mobile money operators from the remittance process. MoMo operators are to disable their wallets from receiving remittances from IMTOs.

The same document bars payment processors and payment service providers from integrating with IMTOs as far remittance is concerned.

The glue binding these two is in the update published on December 2. IMTOs are to make sure they pass the dollars meant to be remitted to beneficiaries through commercial banks. These banks have also been ordered to close all IMTOs naira accounts.

In other words, the CBN is trying to create a linear remittance architecture that looks something like this:


Why is the CBN rooting for the dollar in this way?

Aloy Chife who operates Sanaa Capital, an IMTO, says the CBN hopes to cut off arbitrage that happens when IMTOs cheaply convert dollars to naira before it gets to beneficiaries.

CBN says it wants users to receive “a market-reflective exchange rate for their inflows,” suggesting a willingness to float the naira.

Considering Nigeria’s large remittance market – $17.5 billion in diaspora remittances in 2019 according to the CBN – Chife believes this good move will level the playing field in the money transfer space.

He says the CBN has “recalibrated competition amongst the international money transfer organizations (IMTO). It’s now ground zero for all IMTO providers.”

Ensuring fairness in the market is probably a secondary goal for the CBN. The apex bank is on a long-term goal of setting up a structure that accounts for every dollar that enters the Nigerian financial system. As with most of the CBN’s projects, this structure will rest on the banking infrastructure.

Banks working with IMTOs will produce what the CBN calls a “central reporting portal for all foreign remittances
” that will
“improve visibility of foreign remittance flows.”

This portal, which will be managed by
the Nigerian Interbank Settlement System (NIBSS), is already being developed.

One can read this from a national security perspective, where the CBN is being vigilant about external funding of terrorism. The most obvious reason for cutting off mobile money operators and centering banks in the remittance process is to take advantage of the BVN which ties every bank account to an identity that can be verified.

But this MoMo exclusion raises one question; how financially inclusive is it to mandate people in rural areas to have bank accounts in order to receive money from their relatives abroad?

We don’t have the CBN’s response to this.

But this reminds us again that, regardless of MPesa’s prowess in Kenya or MFS Africa’s growing influence integrating cross-border transfers across 34 countries, Nigeria wants banks to take centre stage in shaping the future of Africa’s biggest economy’s financial system.

About the Author

Ogunbamike Praise

Social media influencer, media Marketer, Blogger.

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