CBN prohibits cash payments into domicilliary accounts

In a bid to stop the Naira devaluation and currency speculation, Nigerian banks last week stopped the acceptance of foreign currency cash deposits into domiciliary accounts. An action that ultimately resulted in the rise of Nigeria’s currency against the US dollar.

Back then, the Central Bank of Nigeria (CBN) denied connection to the sudden decision of banks rejecting foreign currency cash deposit. “The request to stop further collection of forex into domiciliary accounts is not a CBN policy but that of Deposit Money Banks (DMB) …” said Mr. Lamido Yuguda, Director, Reserve Management (CBN).

But on Wednesday the 5th of August, CBN issued a formal restriction on banks to stop accepting foreign currency cash deposit from customers. A circular signed by the Director, Trade and Exchange Department, Mr. Olakanmi I. Gbadamosi, reads, “The Central Bank of Nigeria has considered the recent statements by deposit money banks concerning the large volume of foreign currencies in their vaults and their decision to stop accepting foreign currency cash deposit into customers’ domiciliary accounts as a welcome development.”

This increases the number of measures the apex bank had taken this year to prevent further devaluation of the naira. In the heat of the declining oil price, and Naira devaluation early this year, the governor of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele mentioned that the CBN will put measures in place to protect the economy and the Naira.

Following in on the promise, the apex bank limited the amount of foreign loans banks could borrow. Banks were also banned from selling intervention foreign exchange to Bureaux De Change, or in the interbank. Also, to check round-trip transactions by banks, the CBN reviewed downwards the net open position of banks from one percent to zero before leaving it at a 0.5 percent level.

This recently endorsed action will help tighten the noose on currency speculators, as quite a number of domiciliary accounts are opened due to speculations. It will also continue to marginally firm up the value of the naira against the dollar as it had done earlier in the week.

This policy will also aid to stop illicit financial flows in the Nigerian banking system, in alignment with the anti-money Laundering stance of the Federal Government.

The circular also states that domiciliary account holders who have made foreign currency cash lodgements prior to the 5th of August 2015, have the option to either withdraw the foreign currency cash or the Naira equivalent. “For the avoidance of doubt, only wire transfer to and from domiciliary accounts are henceforth permissible … By this circular, those who deposited foreign currencies into their accounts before the directive will now have to withdraw the cash as they are not going to be allowed to transfer the funds.”

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