Nigeria: CBN Attributes Naira’s Decline to Diversion of Diaspora Remittances

The Central Bank of Nigeria (CBN) has linked the rapid depreciation of the naira against the dollar to the redirection of remittances from Nigerians abroad towards the parallel market.

Acting CBN Governor, Folashodun Shonubi, made this assertion during a lecture titled ‘Diaspora Remittances and Nigeria’s Economic Development’ at the National Institute for Security Studies in Abuja.

In the aftermath of the naira’s float, the currency has reached an unprecedented low, nearing N1000 against the dollar after registering N950/$ at the parallel market on Thursday. Nonetheless, the naira showed marginal improvement in the investors and exporters (I&E) market, edging up by 0.13 percent to settle at N781.34/$.

Addressing the gathering, Shonubi highlighted that a substantial portion of remittances channeled back to Nigeria by diaspora individuals is finding its way to the parallel market without undergoing formal documentation.

He stated, “Despite the inflow of remittances, the dollars appear to vanish from the official system. This situation prompts us to question where these funds are going.”

He continued by emphasizing that the informal and unregulated nature of the parallel market makes it susceptible to illicit activities. “When individuals, including bankers, engage in wrongful conduct, their initial reaction is often to exchange money in the black market, as it’s easier to handle. Some of these funds in the black market actually originate from diaspora remittances,” Shonubi added.

According to him, a significant portion of the inflows that enters Nigeria through unauthorized channels ultimately ends up on the parallel market, contributing to the nation’s foreign exchange (FX) challenges.

Shonubi advocated for the implementation of policies within Nigeria to curb illegal remittances and identify these routes. He argued that such measures would help ensure that remittances flow through legitimate channels, maximizing their economic growth potential.

He commented, “Our foreign exchange market management and policy effectiveness to manage the exchange rate become complicated due to diaspora remittances diverting to other markets.”

Shonubi also emphasized the importance of understanding the dynamics at play rather than relying solely on literature or sentiment-driven decisions.

He concluded, “While we can’t ignore the presence of black markets, it’s essential to realize that they pose their own set of problems. Efficient management of the exchange rate and foreign exchange market is hindered by our diaspora remittances flowing into alternative markets.”

The CBN chief stressed the significance of diaspora remittances as a primary income source for many countries, and he highlighted the necessity of enhancing policies to ensure their proper integration into the formal financial system.