Nigeria’s Central Bank Sets Limit on Oil Firms’ FX Transfers from Crude Oil Proceeds
In a bid to bolster dollar supply in the local currency market, Nigeria’s central bank has introduced a new measure that limits foreign currency transfers from crude export proceeds by international oil companies to their parent firms.
According to a circular dated February 14, the Central Bank of Nigeria has instructed banks to initially transfer a maximum of 50% of crude export proceeds to oil companies abroad. The remaining balance can be transferred after 90 days from the deposit of the proceeds.
However, analysts anticipate that the impact of this new rule may be marginal due to the practice of “cash pooling,” where international companies lend and borrow between themselves.
Nigeria, Africa’s largest economy, has been grappling with severe dollar shortages that have led to record lows for its currency. Despite this, Central Bank Governor Olayemi Cardoso has expressed optimism, stating that dollar liquidity is improving.
This latest move is part of a series of reforms by the central bank aimed at enhancing dollar liquidity. The country faced a severe shortage of dollars following a significant drop in oil prices in 2016 and disruptions caused by the COVID-19 pandemic.
Following the announcement of the circular, the naira fell to a record low of 1,606 to the dollar before recovering to close at 1,476 naira, approximately the same level seen on the unofficial parallel market.
Related Posts
The central bank has emphasized that it aims to ensure that foreign transfers have minimal impact on liquidity in the currency market while facilitating oil firms’ access to their crude proceeds.
Cardoso has indicated that the currency will adjust once market participant rules are clarified. Last week, the central bank increased open market rates to attract investors to bills, as inflation reached a nearly three-decade high
