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Home » Tinubu’s executive orders may mean Amnesty’ in boon to Nigeria’s FX market

Tinubu’s executive orders may mean Amnesty’ in boon to Nigeria’s FX market

The federal government has introduced measures to ensure liquidity in the nation’s forex market.

The measures come via two executive orders signed by President Bola Tinubu.
Although the orders have become effective they are yet to be gazetted but lawyers and economists call the move a game changer in that it could act as a sort of ‘amnesty’ to encourage holders of foreign exchange cash outside the banking system to bring them into the official channel.

Finance Minister and coordinating of the economy, Wale Edun provided a hint about this Monday when he spoke at a session at the 29th Nigeria Economic Summit (#NES29) holding in Abuja.

According to him, “Mr. President announced that he had taken measures to ease illiquidity in the forex market, which we know is very problematic at this time. The market is illiquid; it’s not functioning properly because there is no supply, and there are various reasons for that.

“The solution that the president has put on the table is that he has signed an executive order that effectively allows, under forbearance, all the cash that is in the domestic economy to legally come into the formal money supply.

“Along with that, there is another executive order that allows domestic issuance of foreign currency instruments so that they will have the incentive to provide that foreign exchange from whatever source.”

The measures which are part of efforts to enhance the supply of foreign exchange in the official market, could ensure that forex in cash that are not in productive use can be made more productive.

Commenting on this initiative, head, Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi, said the government knows that there are some transactions being done via unofficial channels and it’s trying to see how it can bring them into the banking system.

He said, “On the issuance of foreign currency instruments, they have been mentioning it before. What is presently obtainable now is that if a company wants to issue a dollar bond, it has to go outside Nigeria to raise the bond in the foreign market.

And at times, the money may not be brought directly into the domestic economy. But if domestic foreign currency instruments such as bonds are allowed, the company raises the funds in the country, and it goes through the domestic bank.

If you are authorised to issue those instruments in Nigeria, there is a high probability that that money will enter into the Nigerian financial system. Asides this, all the cash that people have and are kept under the bed and even the ones in domiciliary accounts can actually be put to productive use. So, the expectation is that it would bring out some cash into the official market.

“On the forbearance of cash into the formal system, it is a kind of amnesty for all the foreign exchange cash that is outside the banking system, even the ones that are questionable; to be brought into the official channel.

This is because some of the transactions that are happening are being done in the unofficial channel. So, they are trying to see how they can bring it into the system. What is happening now is that it is not like we don’t have dollars. We have a lot of dollars in the system, but they are not active. Some of them are outside the financial system. A lot of people have dollars but they are keeping it under their beds.

“So, they are trying to look inward and see how to improve the official dollar supply in the economy. I think we will be getting more information as the weeks go by.”

He added that the government may have to relax some of the forex restrictions, like the $10,000 daily cash deposit limit.

A development economist, Peter Adewale told the Lawyer there is no doubt that Nigeria needs an urgent and innovative forex policy to address the current situation that will benefit all Nigerians.

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He urged the Central Bank of Nigeria (CBN) to embrace full digitalisation of the forex market and eliminate cash-based transactions to decisively address the market’s supply-side and liquidity challenges. He also said it is equally vital to eliminate restrictions on domiciliary accounts.

Another financial expert, Umar Idris, said once the links between the foreign exchange and financial systems are fully digitalised, it becomes much simpler for individuals to voluntarily release hoarded dollars from domiciliary bank accounts to meet the high demand for dollars.

Meanwhile, the finance minister Wale Edun said the federal government was going to digitalise the foreign exchange market, make it attractive, and attract more forex that will serve as a buffer for the nation’s economy.

“There is a line of sight on $10 billion worth of inflow of foreign exchange in the relatively near future, in weeks rather than months,” Edun told a business conference.

“These measures taken as a whole and comprehensively should lead to the flow of foreign exchange,” Edun said at the summit.

President Tinubu, who was also at the summit yesterday, stated his administration’s commitment to addressing the existing foreign exchange future contracts backlog in a bid to restore investor confidence in the country’s FX reforms.

Read also: At NESG summit, Tinubu vows to clear FX backlog

He said his government was determined to secure the required foreign exchange resources to revitalise the nation’s economy.

The Central Bank of Nigeria (CBN) had previously issued forward contracts to various Nigerian businesses, promising them dollars at agreed-upon prices in the future.

The NESG chairman, Niyi Yusuf, said the country is now at the precipice, pointing to potentially more risks of stagnation and distress if a low-growth and low-investment era persists.

“Our nation stands at a critical precipice, and our challenges demand immediate, concerted efforts,” Yusuf told President Tinubu at the opening of the two-day opening session of the 29th Nigeria Economic Summit (#NES29).

“We need to act now with a shared sense of urgency,” he stated.

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