UNIVERSITY OF ILORIN

FACULTY OF MANAGEMENT SCIENCES

DEPARTMENT: INDUSTRIAL RELATIONS

AND PERSONNEL MANAGEMENT

COURSE CODE: BUS 320

NAME: JOLAOSO ABISOLA JUSTINAH

MATRIC NUMBER: 18/66RP133

Assignment

“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.
In an effort to sustain the encouraging increase in inflows of diaspora remittances into the

country. the Central Bank of Nigeria (CBN) announced the introduction of the "CBN Naira 4

Dollar Scheme', an incentive for senders and recipients of International Money Transfers.

According to the new promotion, all recipients of diaspora remittances through CBN licensed

IMTOs shall be paid N5 for every USD1 received as remittance inflow. In light of this, the CBN

shall. through commercial banks, pay to remittance recipients the incentive of N5 for every

USD1 remitted by sender and collected by designated beneficiary. This incentive is to be paid to

recipients whether they choose to collect the USD as cash across the counter in a bank or transfer

same into their domiciliary account. In effect, a typical recipient of diaspora remittances will, at

the point of collection, receive not only the USD sent from abroad but also the additional N5 per

USD received.

The scheme took effect from Monday 8 March 2021 and was to end on Saturday 08 May

2021.However, the Nigeria's central bank plans to extend a naira incentive offer to recipients of

dollar remittance until further notice, it said, in a push to boost foreign currency supply. Rising

dollar demand has been putting pressure on the naira. Nigeria is hoping it can attract remittances

from its Diaspora as providers of foreign exchange, such as offshore investors, have exited after

COVID-19 triggered a fall in oil prices. Recipients of remittances from the Nigerian Diaspora

made through international money transfer operators licensed by the central bank will receive 5

naira ($0.013) for every imported dollar, the regulator has said. The Central bank said the

scheme, which was meant to end on May 8, would continue until further notice. Remittances into
Nigeria increased fivefold from a weekly average of $5 million to more than $30 million, Central

Bank Governor Godwin Emefiele said in February, after the changes to Diaspora transfer rules.

Nigeria changed the currency of remittance payments to the dollar from naira in November, after

the currency fell to 500 naira on the black market. The naira is quoted at 485 per dollar on the

black market on Thursday.

Remittances, or money transfers, make up the second-largest source of foreign exchange receipts

after oil revenues in Nigeria, Africa's biggest economy. Around $26.4 billion was sent to Nigeria

in 2019, according to the World Bank. It becomes essential to consider the impact of this scheme

on the country’s economy in various facets, we shall consider the effect of this scheme of three

core areas which are Foreign exchange, Value of Naira and International trade.

There are several observations about the new Naira 4-dollar policy:

One, without diminishing the contributions of the Diaspora remittances to Nigeria’s economy,

the new policy creates a very worrying impression that the Naira becoming a stable currency will

be largely dependent on inflows from the Diaspora. Such an impression outsources governance

and management of the economy to the Diaspora. The truth is that the Naira becoming a stable

currency will be more dependent on the government’s ability to effectively transform and

manage the economy from its current high dependence on oil for its FOREX needs to a

diversified economy with several sources of meaningful foreign exchange earnings through

aggressive export support schemes. At the root of Nigeria’s FOREX problem are the country’s
Balance of Trade (BOT) and Balance of Payment (BOP) deficits rather than remittance inflows

from abroad.

Two, it is not exactly clear how the new dollarization of the economy policy will address the

country’s Balance of Trade and Balance of Payment problems –which, as argued above, are at

the heart of the pressure on our FOREX market. It should be noted that the new Dollar-4-Naira

policy gives recipients the option of collecting the dollars in cash. In fact, the IMTOs are

mandated to pay dollars to the recipients through the banks. This not only raises questions about

the dollarization of the economy but also about how the measure will address the more

fundamental problems of balance of trade and balance of payment deficits.

Three, it should be borne in mind that how much the Diaspora can remit is often a function of the

economic circumstances of their countries of domicile. This means that when the economies of

their host countries are doing well, they are likely to have better paying jobs, and thus able to

remit more. In essence, how much they can remit is largely determined by circumstances outside

their control, raising the question of the effectiveness of the policy in raising the level of

remittances. Additionally, a substantial portion of the Diaspora remittances are directed at

meeting familial obligations such as taking care of aged parents and relatives or paying school

fees for their siblings. With Nigeria becoming the poverty capital of the world, it can be surmised

that many Nigerians in the Diaspora will feel even more obligated to help relatives and family

members, meaning that Diaspora Nigerians are likely to continue remittances to meet their

familial and societal obligations with or without the CBN’s Naira bonanza.
Four, based on the data from the World Bank, the country’s total direct remittance inflows have

averaged $US21bn in the past 9 years. Extrapolating from this, it means that the CBN will be

paying FOREX recipients through the IMTOs a whopping sum of some N17.5bn as incentives

for the two months that the policy will be in effect. This raises a crucial question of whether this

is money well spent or if the expected gains from this policy will be sufficient to justify this huge

financial outlay, which, if judiciously spent on some sectors, such as aggressive export

promotion, could have more beneficial and sustainable effect in attracting foreign currency

earnings than the CBN’s new Naira-4-Dollar policy. This is in addition to concerns about

whether the policy will not be unnecessarily rewarding FOREX earners while subtly devaluing

the Naira.