The Central Bank of Nigeria has the mandate to manage the exchange rate. For that reason, it is in order for the apex bank to issue the restriction in meeting its policy target. To be clear, this restriction applies to spending or withdrawal of naira deposits in dollars or other foreign currencies. It does not apply to dollar debit or credit cards where the funding accounts have foreign exchange balances.
It appears that Nigerians are struggling to make the adjustments that are necessary to help ease the pressure on the naira. I agree that the adjustments are difficult to make. For some people, their livelihoods could be on the line. For others, it is well-established tastes that are being threatened by the restrictions on foreign consumption. The needed adjustment becomes even more difficult where there is no inspirational leadership, local substitutes and a clear communication of policy pathway.
It is only wise that people start looking at consumption and other lifestyle preferences that are less susceptible to regulations like this one. Once such restrictions are announced, they automatically affect the way we live. Hence, it makes sense that we, on our own, begin to look at the changes we could make that would be less disruptive.
Ambrose Omordion (Chief Research Officer, InvestData Consulting Limited)
What the action intends to achieve with the policy is to take full control of the country’s foreign exchange market. The worry is that if drastic measures are not taken, we would deplete our foreign reserve. I consider the policy as a good one. However, it negates open economy principle and distorts the interplay of demand and supply.
The essence of the policy is to conserve foreign exchange so that it would be available to those who need it for productive activities. That is good because everybody has access to forex and can withdraw through the ATM, we cannot control it. The good thing about it is that the window would not be closed forever. It is a temporary measure to control the market.
We need to find our feet economically before the market could be deregulated. The dollar is selling for almost N500 at the parallel market whereas the official rate is just a little above N300. Now, it is only one bank that sells forex. So, there are constraints already; that means people would continue to complain. But I think the CBN knows what it is doing.
The foreign reserve has hit an 11-year low. That means every reasonable policy should be adopted to manage the situation. What we need are policies that would boost economic activities. I think the Monetary Policy Committee would, in its next meeting, reduce the interest rate. When that happens, economic agents would have access to cheaper funds. That would stimulate the domestic economy.
Prof. Akpan Ekpo (Director General, West African Institute for Financial and Economic Management)
The suspension is unfortunate. However, we have to understand that there is a shortage in the supply of foreign currencies. The banks have to make do with the foreign currencies available to them and channel them into the productive sector. Preference has to be given to manufacturers and industrialists.
I hope it is a temporary measure adopted by banks. But it does not apply to those who have dollars in their domiciliary accounts. They can withdraw dollars abroad from ATMs.
David Adorin (Chief Executive Officer, High Cap Securities)
There is a scarcity of foreign exchange in the economy and the little that is available would have to be rationed to meet cogent and important transactions. So, ATM transactions are non-material transactions. I think the suspension is a right step in the right direction so that they can satisfy the yearnings of their customers who are into productive activities.
The foreign exchange market is not properly organised now. So, the country’s monetary authorities have to properly address this. Secondly, the importation of items needs to be discouraged so that we can conserve foreign exchange and encourage export.
Bismarck Rewane (Chief Executive Officer, Financial Derivatives Company Limited)
The banks are only responding to the shortage in the foreign currencies. They are taking steps to ensure that they don’t get unbalanced. As soon as supply improves, they will reverse the suspension.
When there is a shortage (in forex), everybody adjusts. I don’t really see it as an issue; the banks cannot give what they don’t have.
Kunle Ezun, Currency Analyst, Ecobank Nigeria Plc
The suspension of ATM card usage abroad boils down to dollar liquidity. It is not new; it has happened in the past. The idea is this; if you use your card abroad and spend dollars, the bank in Nigeria would have to replenish what you have spent. Although the suspension is not ideal for the banking industry, the circumstances surrounding the operation of those services abroad is quite challenging.
If customers use their cards abroad and their banks here in Nigeria cannot repay the corresponding banks, it paints them (Nigerian banks) in bad light. The cost of buying dollars is quite challenging now. As much as banks would want to serve their customers, they have to be very conscious so that they don’t run at a loss.
It is a stop-gap measure because the challenge is beyond them. The only solution is for us to see more dollar inflow into the system. And if the price of oil increases, it would help us to increase our foreign reserve. These are the things that would help in addressing the dollar liquidity.
Another option, especially for those who might want to do business abroad, is to buy PTA (Personal Travelling Allowance) which is $4,000 per quarter.
Victor Okhai (A public affairs analyst)
The suspension of the use of Automated Teller Machine card for foreign transactions is not in the interest of the country and Nigerians. While it may help the banks to achieve some short-term goals, it would put more pressure on the parallel market.
The policy would further widen the official and the black market differential. With the end of the year approaching, the demand for dollar at the black market would rise astronomically. And with the market already finding it difficult to meet the demand, Nigerians should prepare for the worst case scenario in coming months. This is because those who are travelling have no option but to go to the black market. The challenges that would follow if the policy is not reversed would affect every aspect of our national life. The Central Bank of Nigeria needs to stop the policy with immediate effect.
Johnson Chukwu (Managing Director/CEO, Cowry Asset Management Limited)
This is not the first time this would happen. We went through this process before. I think it has to do with the current level of our foreign reserve, which has come down to about $24bn. The key challenge is that the policy would constrain a lot of Nigerians from doing legitimate business through the banking system. That would force them to adopt cash transaction option.
Unfortunately, that would compel people to patronise the parallel market. Without the use of debit cards, Nigerians would be cut off from the international financial payment system. What that means is that Nigerians cannot make hotel reservations outside the country using their debit cards.
Meanwhile, owing to the anti-money laundering campaign across the world, many organisations do not accept cash as a means of payment. This would pose a major challenge to Nigerians who would not be able to do legitimate business outside the country. Nigerians may not be able to pay for ordinary magazine subscription and other basic transactions. And when they resort to cash transactions, they would be seen as fraudsters.