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The Central Bank of Nigeria (CBN) has initiated a policy aimed at regulating the flow of foreign exchange, particularly concerning international oil companies (IOCs) operating within the nation’s borders.
This directive came to light through a memorandum issued by Hassan Mahmud, the head of the central bank’s department overseeing international trade and currency exchange. Mahmud’s memo highlighted the practice known as “cash pooling” and its impact on the local foreign exchange market.
According to the new guidelines, IOCs are now restricted from immediately transferring all their foreign currency earnings to their parent companies abroad. Instead, they are only allowed to repatriate half of their earnings promptly, with the remaining half eligible for repatriation after a 90-day period from the date of arrival.
The CBN’s decision stems from its observation that the routine transfer of proceeds from crude oil exports by IOCs to their parent accounts offshore has been affecting liquidity in the domestic foreign exchange market.
In light of ongoing reforms in the foreign exchange sector, the CBN deemed it necessary to intervene and address this trend effectively. As a result, banks are now permitted to pool cash on behalf of IOCs, but the maximum allowed for immediate repatriation is set at 50% of the exported proceeds.
The remaining 50% can only be repatriated after a 90-day waiting period from the inflow date of the export proceeds, according to the directives issued by the CBN.
This policy adjustment signifies the central bank’s proactive stance in managing the country’s foreign exchange reserves and ensuring stability in the forex market. It is a strategic move aimed at optimizing the utilization of foreign currency earnings generated from Nigeria’s oil exports.
By implementing such measures, the CBN seeks to balance the demand and supply dynamics in the local foreign exchange market while promoting transparency and efficiency in currency transactions involving IOCs.
The CBN’s decision underscores its commitment to fostering a conducive environment for economic growth and financial stability in Nigeria amidst global economic uncertainties and fluctuations in oil prices.
This move also aligns with the broader objectives of the Nigerian government to safeguard the nation’s economic interests and preserve the value of its foreign exchange reserves for sustainable development and prosperity.
