14 Feb 2022: The Central Bank of Nigeria has come up with a new forex plan wherein they will stop selling the greenback to local banks and instead ask lenders to source foreign currency on their own. The regulator is ready to offer long-term cheap credit to export-oriented producers and seek to lure exporters to repatriate dollar proceeds and park that with banks.

By the end of the year, “we will tell them, don’t come to the central bank for foreign exchange again,” Governor Godwin Emefiele said, referring to the banks. He spoke to the media after meeting with heads of commercial lenders on Thursday. 

Nigeria’s central bank has been struggling to boost dollar supply and has often come up with are plans to do the same. The latest plan will be the biggest change since it stopped selling foreign currency to money changers. The regulator has had to devalue the currency three times since 2020 after a slump in crude oil prices hit inflows. The CBN expects the recent measures to boost foreign-exchange supply in the next three to five years.

“I’m not sure why banks will be more effective at getting exporters to repatriate their proceeds to Nigeria than the central bank,” Yvonne Mhango, Africa economist at Renaissance Capital, said in an emailed response to questions. “Without any assurance that we will see a pickup in repatriation of proceeds if the central bank” stops supplying banks, it could weaken the naira, he said. 

The regulator has decided to set up an export support facility that will extend credit for up to 10 years -- with two years moratorium and 5% interest rate -- to producers, Emefiele said. The central bank will also extend by a year a Covid-19 interest rate benefit started in 2020 to help manufacturers, he said. 

Dollar Shortage

The central bank plans to make it appealing for exporters to purchase the local currency and bring their overseas earnings home. This has not been the case so far since 27% disparity between the official and parallel market exchange rates of the naira has discouraged companies from repatriating foreign currency to Nigeria.

“It is only by boosting productive and earning capacity of this economy that we can truly preserve the long-term value of our currency, as well as the stability of our exchange rate,” Emefiele said. 

The official spot rate weakened 0.1% to 416.71 naira to the greenback by 4:30 p.m. in Lagos, the nation’s commercial capital.

In July 2021, The central bank accused money changers of aggravating a dollar shortage and thereby halted supplies to them, robbing the market of almost $6 billion a year of supply. In September, it ordered lenders to identify customers buying foreign exchange using fake documents and make their names public in a bid to stifle dollar arbitrage.