The Central Bank of Nigeria (CBN) has made a strategic move to invigorate foreign exchange management in the country. On Friday, the bank issued a comprehensive circular outlining a new framework for Deposit Money Banks (DMBs) to deposit their surplus foreign currency notes at designated CBN branches. This initiative, designed to bolster the forex market, enhance liquidity, and ultimately achieve greater exchange rate stability, is a response to growing demand from DMBs for streamlined channels to manage their foreign currency holdings.
Key Provisions of the Revised Guidelines:
- Enhanced Transparency Through Prior Notification: To ensure seamless processing and transparency, DMBs are required to submit a written notification to the Branch Controller at CBN Lagos or Abuja at least three working days in advance of a deposit. This notification must include a meticulous breakdown of the ownership of the foreign currency to be deposited. This requirement strengthens transparency by providing the CBN with advanced notice of incoming deposits and allowing for better planning and resource allocation.
- Streamlined Deposit Process with Clear Limits and Segregation: The CBN has established clear parameters on the quantity of foreign currency that can be deposited in a single transaction. These limits are set to:
- Maximum of $10 million for high denomination bills (USD 100 and USD 50)
- Maximum of $1 million for lower denomination bills (USD 20 and below)
- Similar limits apply to British Pounds (GBP 1 million) and Euros (EUR 1 million)
- To expedite processing, deposited currencies must be meticulously segregated into separate boxes according to denomination.
- Reinforced Security and Verification Measures: The CBN prioritizes the integrity of the process by mandating that:
- Each deposit will be witnessed and confirmed by two designated representatives from the depositing DMB.
- DMBs must exclusively utilize CBN-registered Cash-in-Transit (CIT) companies for secure transportation of foreign currency. These measures are crucial to safeguarding the forex deposits throughout the entire process, from the DMBs’ vaults to the CBN branches.
- Dedicated Window and Efficient Processing: The CBN has designated a specific window for these transactions, allowing deposits between 8:00 am and 12:00 pm. Deposited currencies will be counted and verified on the same day in the presence of bank representatives. This designated window streamlines the deposit process and ensures efficient use of resources for both the CBN and DMBs. By concluding the counting and verification process on the same day, the CBN can expedite the crediting of funds to the DMBs’ accounts.
- Transparent Settlement and Defined Fees: The CBN will credit the corresponding DMB account through their offshore correspondent bank within a T+5 business day cycle (five business days after the deposit). A clearly defined handling charge of 0.30% will be deducted from the DMB’s current account with the CBN to cover processing costs. The CBN’s clearly defined settlement timeframe and fees provide DMBs with transparency and predictability when it comes to managing their foreign currency deposits.
- Strict Compliance Ensures Orderly System: The CBN emphasizes that adherence to these guidelines is mandatory. Any DMB failing to comply with any aspect of the process will have their foreign currency deposit rejected. Strict compliance from all parties involved is essential for maintaining an orderly and efficient system for managing excess foreign currency in the Nigerian banking sector.
Expected Positive Impact:
This new framework for managing excess foreign currency by DMBs is anticipated to have a beneficial impact on the Nigerian foreign exchange market. By providing a clear and efficient channel for DMBs to deposit their forex holdings, the CBN aims to:
- Increase liquidity in the official foreign exchange market, potentially leading to a convergence between official and parallel market rates. A more liquid forex market fosters greater competition among market participants, which can help to stabilize exchange rates.
- Enhance transparency and accountability in foreign exchange transactions. The CBN’s new guidelines promote transparency by requiring DMBs to provide detailed notification regarding the ownership of deposited currencies. This can help to mitigate against illicit activities in the foreign exchange market.
- Foster a more stable and predictable foreign exchange environment for businesses and individuals. By increasing liquidity and transparency in the forex market, the CBN paves the way for a more stable and predictable exchange rate environment. This stability benefits businesses and individuals who engage in international trade and transactions.
