The recent Central Bank of Nigeria (CBN) guidelines on two critical areas in the management of the foreign exchange market is quite insightful. On one hand, the Bank has restricted the international oil companies (IOCs) operating in the country from remitting all their proceeds abroad at a go while on the other, it stopped all dollar cash payments for foreign personal and business travels through the Personal Travel Allowance (PTA) and the Business Travel Allowance (BTA). These guidelines, understandably so, are as a result of the instability of the market for foreign currencies especially in the parallel market where efforts by the CBN to narrow the gap between the official market and the parallel market seems to be a sort of mirage with the gap between the two markets seemingly widening despite the efforts of the monetary authority. While it is important for the CBN to remain pro-active in reviewing policies and practices which have adversely affected the standing of the naira against other currencies, particularly the United States dollar, care must be taken to avoid the creation of other problems in attempts at solving one.
   
First, the guideline which indicated that the IOCs operating in the country will only be allowed to repatriate only a portion of their foreign exchange proceeds is expected to have significant implications in the country’s foreign exchange market, at least in the short term. The requirement is that the IOCs will now be allowed to repatriate only 50 per cent of their proceeds immediately with the other 50 per cent allowed to be repatriated 90 days from the day of inflow. With this, there is the expectation that this would influence the retention of foreign currencies within the economy and thus affect the stream of supply of foreign exchange to the market. This sounds good but the question that arises is whether the CBN has critically evaluated the long term impact on the economy?

The perception that these repatriations are made by these companies to fund parent company accounts appear real but what would happen to the level of confidence in the Nigerian economy if exchange control rules are made to appear to foreigners, as unstable in relation to the inflow and outflow of capital for potential investors in the economy. If there is a perception to the discerning foreign investor that profit repatriation is a problem in the economy, then there is the strong probability of discouraging foreign investments in the country. By this, the much needed capital flows to strengthen the foreign exchange market would be truncated and the country would be the loser in the long run.

The case of the foreign airlines that could not repatriate their profits is still in the public domain. In fact this has created some problems in the operations of these airlines to the extent that a major airline, the Emirates has suspended its operations in the country until these issues are resolved and their funds allowed to be remitted to their parent company abroad. The CBN should not run into any problems in this desperation to stabilise the foreign exchange market so as not to unleash a backlash on the system by these IOCs. The risk element for the country should not be exacerbated by the CBN in its haste to manage the seemingly unanticipated consequences of the announcement of the harmonisation of the foreign exchange market as made by President Bola Ahmed Tinubu at his inauguration into office on May 29, 2023.
   
Second, the stoppage of dollar cash payments for foreign personal and business travels also has its key implications for the management of the foreign exchange market. By the new CBN arrangement, the PTA and BTA must now be processed through electronic channels, including debit or credit cards. Obviously, excess or unutilised dollar cash payments made for foreign travels have been a source of funding of the parallel market. The key issue here is whether this policy has a significant effect in the arrest of the dwindling value of the naira in relation to other currencies. While the total prohibition of cash payments may be beneficial here, the unspent credits in the cards could also find their way into individual domiciliary accounts which could also find their way into the parallel market, except the CBN ensures that this channel of passage is totally blocked.
   
Overall, these guidelines appear to be fire brigade approaches by the CBN to arrest the instability in the foreign exchange market. It is good for the short term but could be damaging for the long term. The critical issue that needs to occupy the CBN here is the entrenchment of effective supply and demand management policies for foreign exchange. For example, the practice where state Governors are alleged to be converting their state Federal Accounts Allocations to foreign currencies puts lots of pressure on the market and should be checked. These and many other infractions are reasons why the foreign exchange market has remained unstable. These are the issues the CBN should focus on.