Nigeria’s currency is struggling to regain ground against the dollar on the international market in the midst of a mounting economic crisis.
In a bid to strengthen the naira, the Central Bank of Nigeria (CBN) has made some decidedly unorthodox moves supposedly with the backing of the federal government.
A new plan that involves making the dollar contraband in the country seems to be the latest of such unorthodox plans.
The country may be jailing citizens who hold on to US dollars. Of course, the bill which proposes this unorthodox method of controlling the currency does not put the proposal in those obviously antagonizing terms.
Instead, as part of the Bank’s proposals, CBN is seeking extra powers to allow it seize foreign currencies in instances “where money is imported to sponsor terrorist activities or any other subversion activities to undermine the security of Nigeria.”
That request could, however, be viewed as a move to simply give the bank and the government permission to access funds in domiciliary accounts of all private citizens in the name of national security.
Why would CBN Push to make Dollar Contraband?
The CBN and other Nigerian regulators are currently finding it hard to regulate the foreign exchange market because of the wide gap between CBN’s official exchange rate of around 305 naira to the dollar and the parallel markets’ street value of between 390 naira to 410 naira.
The gap creates uncertainty and a shortage of dollars in the system as investors and individuals tend to sit on their own dollars to see how far the naira will fall.
If the amendment bill to regulate the local foreign exchange market is passed, one likely outcome would be that Nigerians with domiciliary accounts will withdraw and hold foreign currencies in cash, to avoid changing money at government rates when better prices are available on the parallel market.
To discourage this eventuality, the Central Bank has proposed a two-year jail term or fine for anyone in “possession” of foreign currency “without depositing same in a domiciliary account within 30 days of its acquisition.”
All previous moves by CBN to stabilize the foreign exchange market, including floating the naira, barring banks from forex trading and cracking down on money transfer operators who work from the diaspora, have so far only worsened the crisis. It is left to see if the dollar contraband move will also have the same result.