The Central Bank of Nigeria (CBN) has announced a new policy that prohibits authorized dealer banks from paying out foreign currency in cash for personal and business travel allowances. The policy, which took effect on Thursday, aims to improve transparency and stability in the foreign exchange market and curb forex malpractices.
According to a circular signed by Hassan Mahmud, the director of the Trade and Exchange Department, the CBN said that all authorized dealer banks shall henceforth effect payout of personal travel allowance (PTA) and business travel allowance (BTA) through electronic channels only, including debit or credit cards. “For the avoidance of doubt, payment of PTA/BTA by cash is no longer permitted,” the circular stated.
The CBN said that the policy change was in line with its commitment to ensure transparency and stability in the foreign exchange market and avoid foreign exchange malpractices. The policy also aligns with the CBN’s plan to unify the exchange rate and create a single market for foreign currency transactions.
The CBN has been under pressure to devalue the naira and adopt a flexible exchange rate regime, as the country faces a shortage of foreign exchange due to low oil prices, weak exports, and the impact of the coronavirus pandemic. The CBN has maintained a multiple exchange rate system, with different rates for the official, parallel, and interbank markets, as well as for importers, exporters, and remittance recipients.
The CBN’s policy has been criticized by some analysts and stakeholders, who argue that it creates distortions, inefficiencies, and arbitrage opportunities in the foreign exchange market. They also contend that it discourages foreign investment, inflates the cost of imports, and undermines confidence in the naira.
However, the CBN has defended its policy, saying that it is necessary to protect the naira from speculative attacks, preserve the country’s external reserves, and support the recovery of the economy. The CBN has also taken several measures to boost the supply of foreign exchange, such as increasing the allocation of forex to banks, facilitating diaspora remittances, and resuming forex sales to bureaux de change operators.
The CBN’s new policy on travel allowances is expected to have some implications for travelers, banks, and the foreign exchange market. For travelers, the policy means that they will have to rely on their cards or electronic transfers to access foreign currency abroad, rather than carrying cash. This could pose some challenges, especially in countries where card acceptance is low or where transaction fees are high.
For banks, the policy means that they will have to ensure that their customers have functional cards that can be used abroad and that they have adequate systems and processes to facilitate electronic payments of travel allowances. Banks will also have to comply with the CBN’s reporting and documentation requirements for travel allowances and ensure that they do not engage in any fraudulent or unauthorized transactions.
For the foreign exchange market, the policy could have some positive effects, such as reducing the demand for cash, increasing the transparency of forex transactions, and improving the efficiency of the market. The policy could also help to narrow the gap between the official and parallel market rates and reduce the pressure on the naira.
The CBN’s new policy on travel allowances is part of its efforts to reform the foreign exchange market and address the challenges facing the economy. The policy is expected to enhance the management of the country’s foreign exchange resources and support the stability of the naira. However, the policy alone may not be enough to resolve the underlying issues of the foreign exchange market, and the CBN may need to adopt a more flexible and market-driven exchange rate regime in the long run.
Source: Business Day
