The Central Bank of Nigeria (CBN) has credited the naira’s fast decline versus the dollar on the diversion of remittances from Nigerians living abroad to the parallel market.
This statement was made by the acting governor of the CBN, Folashodun Shonubi, while giving a lecture titled ‘Diaspora Remittances and Nigeria Economic Development’ at the National Institute for Security Studies in Abuja.
Two months after the float of the naira, the currency has hit a record low, inching towards N1000 after N950/$ was reported at the parallel market on Thursday. However, the naira gained slightly in the investors and exporters (I&E) market, rising 0.13 percent to settle at N781.34/$.
Speaking at the occasion, Shonubi said that many funds sent back to Nigeria by diaspora workers end up in the parallel market without being formally documented.
He said, “With those remittances, the dollars have come in, we know the dollars have come in but we don’t see them in the official system. So, they must be going somewhere.
“And the challenge with the black market, unofficial market or parallel market or whatever name you want to call it, it is not regulated, and it becomes an easy place to have criminal activities.
“We investigate bankers, not just bankers, anybody who has committed an offense, the first thing they want to do is to run to the black markets, change it to the dollars because it is less money to carry around.
“Some of the funding in the black markets are actually from diaspora remittances. That’s why it is important we need to know a lot of what’s going on there.
“We can’t play the sentiment game. If we don’t understand the dynamics, we usually go with the literature which does not necessarily work for us.”
Shonubi then said that a major portion of the inflows that entered Nigeria through several unauthorized avenues and ultimately ended up on the parallel market were responsible for the country’s current account (FX) issue.
He claimed that it would be advantageous to put policies in place within the nation to control illegal remittances and find these conduits.
According to him, doing so will ensure that remittances enter the appropriate channels and maximize their economic growth advantages.
“We talk about black markets, which also create their own problems. Management of the foreign exchange market and the efficacy of our policies to manage the exchange rate becomes difficult due to our diaspora remittances which are going to other markets,” the CBN boss said.
“Today, someone called me privately and said that this thing (naira) has gone up to some levels in the black markets, my question was, what do you want me to do? Do I operate in the black markets? I don’t know the basis of pricing in the black markets.
“The other thing people don’t realise is that, because you don’t have full information, and I will give you an example. Since we started the I&E window, we found out that some people would deliberately wait until the last minute and do one transaction of $5,000 and that becomes the closing rate.
“We can’t do without diaspora remittances. For many countries, that’s their main source of income.”
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Diaspora remittance should lower the rate of depreciation of the naira rather than depress it. Without diaspora remittance, more funds will come to the official window and depress the value of the naira further. The "black market" is (only) reducing the pressure on the fx market which is the way a free market operates. Diaspora funds is exchanged where the owner can get the best value for its diaspora funds. If the fx is providing the higher return/exchange, all diaspora funds would come to regular retail bank or CBN.