Nigeria to Pay 1.2 Cents for Each Dollar Remitted to the Country to Combat Cryptocurrency Use – Emerging Markets Bitcoin News
The Central Bank of Nigeria (CBN) has announced a programme to encourage international remittances and promote the use of formal corridors to receive funds. The CBN’s decision to encourage recipients follows a sharp decline in the flow of formal remittances into the country, with recipients opting for non-traditional channels such as cryptocurrencies.
Transfers of funds down
Under the so-called Naira per dollar CBR, recipients of foreign remittances are entitled to an additional payment of 1.2 cents (5 Naira) for each US dollar received. However, according to the CBN, this incentive program is valid for only 60 days.
Announcing the new measures, the CBN said it wanted to increase the inflow of remittances from the diaspora into the country. In a letter explaining how the stimulus scheme works, the central bank said:
In this regard, the CBN and commercial banks pay remittance recipients an incentive payment of 5 Naira for every dollar sent by the sender and collected by the designated recipient. This incentive is paid to beneficiaries whether they accept the dollar in cash from the counter or transfer it to their personal account.
According to the letter, the incentive program will begin on the 8th. Late May and officials believe this will increase the flow of remittances into the country through the banking system.
Transfers in underwater
As previously reported, Nigeria’s international remittances declined at the end of 2020. Data from Nairalytics shows that inflows into the country have fallen from a high of $2.05 billion in January 2020 to $54.4 million at the end of September 2020.
Overvalued exchange rate
The huge drop in remittances through official channels is because more Nigerians are turning to companies that use cryptocurrencies to transfer money across the border. Unlike regulated financial institutions that use the official exchange rate, increasingly popular cryptocurrency money transfer companies reportedly used (before the directive) a parallel exchange rate when converting US dollars into naira. As the gap between the official and parallel exchange rates has widened, inflows through official channels have declined, while volumes traded through cryptocurrencies have increased.
Meanwhile, the central bank has devalued the naira three times in its earlier attempts to halt the decline in foreign exchange inflows. The first devaluation was announced in March 2020, when the dollar/naira exchange rate went from 1:307 to 1:360. Four months later, the rate was adjusted slightly to $1 per 380 neur. At the time of the last devaluation, the central bank set the exchange rate at USD 1 for 411 neiras. According to Abokifx, a website that tracks exchange rates on the parallel market, one US dollar was trading at N475 at the time of writing. It remains to be seen whether the incentive scheme will be able to bring remittances back to their previous level.
What do you think of the CBN incentive system? Tell us what you think in the comments below.
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