The Nigerian Senate has taken a bold step towards enhancing the value and independence of the Naira by introducing a Bill to prohibit the use of foreign currencies for domestic transactions. The legislation, titled A Bill for an Act to Alter the Central Bank of Nigeria Act, 2007, No. 7, to Prohibit the Use of Foreign Currencies for Remuneration and Other Related Matters, passed its First Reading on Tuesday in the Senate chambers.

Sponsored by Senator Ned Munir Nwoko, the Chairman of the Senate Committee on Reparations and Repatriation, the Bill seeks to prioritize the Naira in all domestic transactions and promote economic sovereignty. The proposed legislation marks a significant move to address longstanding issues in Nigeria’s foreign exchange (forex) policy and economic structure.

Background and Rationale

The widespread use of foreign currencies such as the US Dollar and the British Pound Sterling in Nigeria’s domestic transactions has been a contentious issue for years. Senator Nwoko described this practice as a relic of colonial influence, arguing that it undermines the value of the Naira and hampers Nigeria’s economic independence.

“The use of the Dollar, Pound Sterling, and other foreign currencies for domestic transactions continues to hinder Nigeria’s economic independence,” he stated during the Bill’s presentation.

The proposed legislation aims to bolster the Naira’s value by mandating that all salaries, payments, and domestic financial operations—whether for locals or expatriates—be conducted exclusively in the Nigerian currency. Furthermore, it seeks to extend this mandate to Nigeria’s crude oil exports and other international trade, compelling foreign buyers to purchase Naira for transactions.

Key Provisions of the Bill

1. Mandatory Use of the Naira:
   All domestic financial transactions, including salaries, payments, and contractual agreements, must be conducted in Naira. This provision extends to expatriates working in Nigeria, ensuring uniform compliance.
2. Exclusive Use for Export Transactions:
   Crude oil sales and other export commodities must be denominated in Naira. This move is designed to create demand for the Nigerian currency in international markets, thereby strengthening its value over time.
3. Abolition of Parallel Forex Market:
   The Bill seeks to eliminate the informal forex market (commonly referred to as the parallel market or black market). Senator Nwoko argued that the parallel market undermines the formal economy by creating arbitrage opportunities that destabilize the forex system.
4. Promotion of Economic Independence and National Pride:
   By prioritizing the Naira, the Bill aims to reclaim Nigeria’s monetary independence, fostering a sense of national pride and self-reliance in financial dealings.

Lessons from Morocco and Other Nations

Senator Nwoko drew comparisons with Morocco, where the Dirham is exclusively used for domestic financial transactions. He highlighted how this policy has strengthened Morocco’s economic stability and enhanced the currency’s global perception.

“Nigeria, with its vast natural resources and dynamic population, has the potential to achieve and surpass Morocco’s success,” he asserted, emphasizing that a similar approach could lead to economic revitalization in Nigeria.

Other countries with strict currency-use policies, such as China, have also seen positive impacts on their national economies. By controlling the use of foreign currencies and promoting their own, these nations have been able to strengthen their monetary policies and achieve greater economic resilience.

Addressing Economic Challenges

The Bill comes at a time when Nigeria faces significant economic challenges, including persistent inflation, high unemployment, and a volatile forex market. The Naira has been under pressure in recent years due to dwindling foreign reserves, reliance on imports, and speculation in the parallel forex market.

If implemented effectively, the proposed legislation could provide a pathway to economic stabilization by:

1. Increasing Demand for the Naira:
   Compelling international buyers of crude oil and other exports to use Naira would create consistent demand for the currency, potentially boosting its value against foreign currencies.
2. Reducing Arbitrage in the Forex Market:
   By eliminating the parallel market, the Bill aims to close the gap between official and black-market exchange rates, creating a more stable forex system.
3. Encouraging Local Production:
   Restricting the use of foreign currencies may incentivize domestic production and reduce reliance on imports, thereby supporting local industries.

Stakeholder Reactions

The Bill has sparked a range of reactions from various stakeholders, including economists, businesses, and policymakers.

• Support from Economic Nationalists:
  Proponents of the Bill argue that it is a long-overdue measure to restore the dignity and value of the Naira. They believe that prioritizing the Naira in transactions will lead to economic independence and reduce the influence of foreign currencies on Nigeria’s economy.
• Concerns from Businesses and Multinationals:
  Critics, particularly from the business community, have expressed concerns about the practicality of the Bill. Many fear that mandatory use of the Naira in all transactions could create inefficiencies, especially for multinational companies operating in Nigeria.
• Call for Comprehensive Implementation:
  Economists have cautioned that the success of the legislation will depend on comprehensive implementation and complementary policies. They emphasize the need for structural reforms to address underlying economic issues, such as infrastructure deficits, corruption, and policy inconsistencies.

Potential Impact on the Nigerian Economy

If passed into law, the Bill could have far-reaching implications for Nigeria’s economy:

1. Strengthened Naira:
   Increased demand for the Naira, coupled with reduced reliance on foreign currencies, could lead to a more stable and valued currency.
2. Economic Diversification:
   By promoting the use of the Naira, the policy could encourage investment in domestic industries and reduce the economy’s dependence on oil exports.
3. Challenges in Transition:
   The transition to exclusive use of the Naira may pose challenges, including resistance from businesses and logistical hurdles in the forex market.
4. Global Trade Considerations:
   International buyers may face initial reluctance to adopt the Naira for transactions, potentially impacting trade volumes in the short term.

Conclusion

The Senate’s move to prohibit the use of foreign currencies for domestic transactions represents a significant step toward reclaiming Nigeria’s monetary independence. While the Bill has the potential to strengthen the Naira and promote economic stability, its success will depend on effective implementation, stakeholder collaboration, and complementary economic reforms.

As Nigeria seeks to establish greater control over its monetary policy and enhance the global standing of the Naira, this legislation could serve as a cornerstone for a more self-reliant and resilient economy.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

19^th December, 2024