The Central Bank of Nigeria (CBN) has warned commercial banks about facing consequences for participating in unlawful foreign exchange sales.

This comes as the naira’s value drops to over N950/$1 in the parallel market due to a scarcity of forex.

There are allegations that deposit money banks are directing most of their forex to the unofficial foreign exchange market instead of serving their customers.

Acting CBN Governor, Folashodun Shonubi, conveyed this during a lecture titled, “Diaspora Remittances and Nigerian Economic Development” in Abuja.

Shonubi stressed the need to take strong measures to curb illegal remittances and guide them through proper channels for optimal economic growth.

In efforts to address this issue, Shonubi revealed the establishment of a commission that will conduct surprise visits to banks accused of engaging in unauthorized dollar sales.

He emphasized, “We need to publicly identify and criticize commercial banks involved in such wrongful practices.”

Shonubi also highlighted the limitations of the current remittance system, estimating that transferring money to Sub-Saharan Africa from the diaspora incurs a cost of about 8-9% for every $100, which is among the highest worldwide.

Despite these challenges, Nigeria received around $16.7 billion in remittances, with a significant portion occurring outside the official foreign exchange market.

“We are making efforts to encourage individuals to utilize formal channels for their transactions, rather than relying on informal methods, which have proven difficult to regulate,” Shonubi stated.

Shonubi acknowledged the impact of incentives in attracting people to the formal market, even though the N5 refund through the Naira 4 Dollar scheme was deemed ineffective and subsequently discontinued.

He announced plans to rename the foreign exchange market, formerly known as the I & E market, to the Nigerian Foreign Exchange Market, as it is the only market recognized by the CBN.

Ayodele Adeleke, the Commandant of the National Institute of Security Studies, emphasized the significance of the lecture series in enhancing the country’s understanding of security matters.

He noted that the series is a strategic component of the 10-month course, aiming to promote and centralize the program’s focus.

In a related context, Shonubi attributed the depreciation of the naira against the dollar and the challenges in managing the foreign exchange market to the diversion of diaspora remittances to unofficial markets, such as the parallel market.

Many of these remittances arrive in Nigeria as dollars and are not formally documented, leading them to enter the parallel market. Shonubi also highlighted that the lack of regulation in the parallel market makes it susceptible to criminal activities.

Africa’s largest economy finds itself grappling with its most severe economic challenges in decades, as the Central Bank of Nigeria (CBN) faces a critical situation.

The CBN’s debt to foreign banks, including $500 million owed to Goldman Sachs and $7 billion to JP Morgan for securities lending, coupled with an additional $6.3 billion in foreign currency forwards, poses a potential threat.

These forex obligations, which the CBN must fulfill for foreign investors, have led to calculations indicating that addressing these demands in the face of foreign exchange shortages could consume a substantial 40.7 percent of Nigeria’s total foreign reserves, currently valued at $34.1 billion.

The figures have raised concerns among experts, who question the credibility of Nigeria’s official foreign reserves position.

Kelvin Emmanuel, CEO of Dairy Hills Ltd, highlighted that senior treasury officials and portfolio managers express doubts about the accuracy of the CBN’s reported numbers, attributing these doubts to the bank’s inability to clear FX backlogs.

Goke Adetoyinbo, an analyst at CSL Stockbrokers Limited, asserted that the CBN’s monetary policy has placed Africa’s largest economy in a precarious situation.

He emphasized that the root of the problem lies in the bank’s attempts to achieve objectives beyond its capacity.

To address this, Adetoyinbo suggested that effective fiscal policy and aggressive taxation are the way forward, providing a means to bolster the country’s reserves.

Mustapha Umaru, an equity research analyst at CSL Stockbrokers Limited, echoed the concerns, emphasizing the need for a proactive approach to enhance Nigeria’s economic prospects.

He stressed the importance of not only aggressive taxation but also effective taxation, alongside an emphasis on improving non-oil exports to attract foreign exchange.

It’s important to note that Africa’s largest economy’s external reserves are divided into distinct portions: the CBN, the Federal Government of Nigeria (FGN), and the Federation.

The CBN handles foreign exchange inflows from various sources, with the proceeds credited to the Federation account.

These monetized foreign exchange reserves belong to the CBN, enabling it to execute monetary policy and safeguard the Naira’s value.