Foreign currencies for local transactions - The Central Bank of Nigeria (CBN) has rejected a resolution of the House of Representatives that it should ban the use of the United States dollar and other foreign currencies for domestic transactions.
The bank said Monday that it could not do so because it did not have the capacity to impose the ban, as it was not a law enforcement agency.
CBN Deputy Governor (Operations), Mr. Tunde Lemo, responding to enquiries from THISDAY Monday on the House's resolution, pointed out that the N5,000 banknote, which the central bank proposed last year, but was suspended due to outcry by some Nigerians, was meant to raise confidence in the naira as well as to address challenges posed by the dollarisation of the economy.
The House during plenary last Thursday had passed the resolution urging the CBN to ban the use of foreign currencies for local transactions.
In a motion brought before the House by Hon. Nadu Karibo, which preceded the resolution, the lawmaker had said that the dollar was fast displacing the naira as a means of exchange in Nigeria.
He explained that major hotels, elite schools and supermarkets now prefer to be paid in dollars for their services rather than accept the naira.
The trend of using foreign currencies instead of the local currency for the payment of domestic transactions, he added, was weakening the naira and should be stopped before the local currency loses its value.
Responding to enquiries on the resolution, Lemo told THISDAY that inasmuch as the central bank agreed that using foreign currencies to pay for local transactions was illegal, there was little it could do about it.
He said: 'The country's legal tender is the naira and it is therefore illegal to pay for goods and services in Nigeria in foreign currency. Unfortunately, CBN is not a law enforcement agency.
'Some of those who do this do so for convenience and that is what the N5, 000 note would have solved.'
When contacted on the development, London-based Emerging Markets Strategist, Standard Bank Plc, Mr. Samir Gadio, told THISDAY that the level of dollarisation of the Nigerian economy was still low and did not pose any threat to the naira.
Gadio explained: 'To be fair, the level of dollarisation of the Nigerian economy is relatively low at present. This is illustrated by the marginal spread between the official, interbank, Bureau de Change and black market exchange rates. Besides, market confidence has improved markedly over the past year as illustrated by the strong resilience of the naira.
'Based on empirical evidence, I am not sure one can successfully use administrative means to prevent transactions in hard currency if there is no confidence in the local unit and persistent macroeconomic distortions put pressure on the exchange rate.'
Also, a former President, Chartered Institute of Bankers of Nigeria (CIBN), Mr. Okechukwu Unegbu, noted that with globalisation, it would be difficult to restrict the usage of foreign currencies for local transactions in the country.
'The world is now a global village. If the economy is strong and the naira finds its level, nobody would use the dollar or any foreign currency for domestic transactions.
Some currencies are used as store of value. When you know it is valuable, you will want to hold it. That is why people now prefer foreign currencies,' he added.
By Obinna Chima