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“Naira for Dollar” scheme was introduced by Central Bank of Nigeria (CBN) as foreign
exchange incentive which is to run from 28 th of march to 28th of May 2021. As a financial
management student access the scheme and its effect on: Foreign exchange, value of
Naira, International trade.
Nigeria’s dependency on oil and oil proceeds as a major source of revenue for our
economy is not in doubt and this is evident in the fact that the oil sector accounts for 95
percent of export earnings and about 40 percent of government revenues. The Nigerian
economy like most economies was gravely affected by the recent global pandemic which
occasioned a drop in oil prices. This was largely because of reduction in crude oil
demand and the oil price war between Russia and Saudi Arabia. In the face of declining
oil earnings and reduced capital inflows from risk-averse foreign investors, extreme
pressure has been building on Nigeria’s foreign reserves in past months. This has led the
once stable economy to suffer a significant drop in the country’s foreign reserve. For a
long while, the country’s foreign reserve has been fluctuating in a declining state as what
stood at US$38.5billion at the start of 2020, plummeted to US$35.36 billion in December
2020. Consequently, Nigeria has experienced a major foreign exchange (forex) shortage,
resulting in an increased parallel market exchange rate after the official exchange rate of
the Nigerian Naira (NGN) was devalued twice within 2020. Ever since, the Central Bank
of Nigeria has been looking for innovative ways to boost its foreign reserves. Part of such
ways according to international market pundits, is the Central Bank of Nigeria’s (CBN)
imposed ban on crypto currency transaction with the hopes (inter alia) of encouraging
more citizens to conduct Dollar transactions through CBN approved International Money
Transfers Operators (IMTOs).

The apex bank of Nigeria, in seeking further ways to increase inflows of diaspora
remittances into the country, introduced a ‘Naira 4 Dollar’ scheme aimed at giving N5 for
every one (1) USD received as remittance inflow. This was contained in a circular dated
the 5th of March, 2021. This scheme as implemented on the 8 th of March, 2021, will run
for two consecutive months and end on the 8 th of May 2021. The scheme has generated a
plethora of issues and questions as presented by Nigerians in their criticism, as it is
believed that the CBN has spent excessively in its bid to defend the naira. According to
reports by the Naira metrics+ in an article published in May, 17 th 2019, the CBN in 2018
distributed about $36.6 billion forex worth in the Investors & Exporters Window to
match with its demand hoping that this will keep the exchange rate stable and drive down
the inflation rate. However, the high volatility nature of the forex market did not allow a
sustainable naira defense for the long term, thereby resulting in a failed mission. The
arrangement failed to secure the economic stability (particularly the fiat) for Nigeria.
Notwithstanding, the current Naira 4 Dollar scheme represents another desperate measure
to salvage the Nigerian currency which in our opinion, is heading towards another
devaluation.

The current Naira 4 Dollar scheme though laudable as it is, may immediately impact the
country’s foreign reserve, but it also poses a threat of further devaluation of the naira, as
more notes will be printed to fund the schemes incentives. This devaluation will likely
lead to an increase in the prices of imported goods and services, thus further depreciating
the Nigerian economy. By this analysis, it appears that the scheme may have a negative
lasting impact, a plot which the CBN should eschew. It goes without saying that it is
extremely pertinent to increase the country’s foreign reserve and whilst applauding the
current efforts of the CBN in doing this, we will consider the impact of this scheme on
Foreign exchange, Value of Naira and International trade.

1. Consistent with the global trend, Nigeria aspires to ensure that remittance flows and diaspora
investments become a significant source of external financing. What this means: The CBN is essentially
admitting that foreign remittances (from Nigerians abroad) is important to boosting dollar liquidity.
READ: CBN issues modalities for payout of diaspora remittances in dollars 2. In an effort to reduce the
cost burden of remitting funds to Nigeria by working Nigerians in the Diaspora, the #CBN has introduced
a rebate of N5 for every $1 of fund remitted to Nigeria, through IMTOs licensed by the CBN. The Scheme
will take effect on the 8th of March 2021. What this means: The target of the CBN are Nigerians in the
diaspora who they want to offer N5 for every $1 remitted to Nigeria. While the target is diaspora
remittances, the people who will benefit are their family, friends, or loved ones who withdraw the
money from the bank. 3. We believe this new measure will help to make the process of sending
remittances through formal bank channels cheaper and more convenient for Nigerians in the diaspora.
#Emefiele What this means: They opine that sending remittances through Nigerian banks ends up being
cheaper and convenient. In reality, they appear to be targeting other channels of remitting money to
Nigerians. For example, rather than pay excess transfer charges, you transfer the money through a
Nigerian bank and then get an extra N5 for each dollar. However, they will have to contend with
thousands of Nigerians who simply embark on peertopeer exchanges. Nigerians who live in the US or
Canada often prefer to sell the dollars to Nigerian living in Nigeria but who need dollars abroad. READ:
The Nigerian economy is increasingly dollarized but there is a wayout 4. New FX policy will create an
easier, more flexible, and more transparent, system of remittance administration, it will greatly enhance
the benefits of diaspora remittances in supporting investments and growth in Nigeria. #Emefiele What
this means: This is essentially a promo pitch. It is all about competing for your remittances. They want
you to route through the bank rather than the black market. 5. Policy on the administration of
remittance flows is aimed at increasing the transparency of remittance inflows, reducing rentseeking
activities, and providing Nigerians in the diaspora with cheaper and more convenient ways of sending
remittances to Nigeria. #Emefiele. What this means: This is a veiled attack on other competing and
probably more beneficial ways of remitting money to Nigeria. Increasing Transparecy is basically
allowing the CBN to track dollar inflows from Diaspora Nigerians and see which sectors it is flowing into
6. PwC forecasts suggest that Nigeria’s remittance flows could reach US$34.89 billion by 2023. But this
can only be accomplished if remittance infrastructure improves and if the right policies are put in place.
What this means: Interesting to note that the PWC forecast quoted by the CBN is based on data
obtained from the World Bank and IMF, who in turn also base their data from the CBN and other
sources. 7. The use of reimbursements of remittance fees has been critical in supporting improved
inflow of remittances to countries in South Asia and in improving their balance of payments position
following the COVID19 pandemic. READ: CBN expects $24bn annual diaspora remittances – Emefiele
What this means: The CBN appears to have modeled this new scheme on similar policies in Asian
countries. Bangladesh also has a similar scheme. Consistent with the global trend, Nigeria aspires to
ensure that remittance flows and diaspora investments become a significant source of external
financing.