CBN Issues Guidelines for New Free Foreign Exchange Deposit Window to Boost Forex Liquidity

 

The Central Bank of Nigeria (CBN) has officially released guidelines for banks to implement the recently announced free foreign exchange deposit window by the Federal Government. This initiative, effective from October 31, 2024, aims to allow individuals to deposit dollar bills held outside the formal banking system without scrutiny, thereby enhancing liquidity in the foreign exchange market.

The guidelines, signed by the acting Directors of the Financial Policy and Regulation Department and the Banking Supervision Department, outline the participation requirements for commercial, merchant, and non-interest banks. Banks are permitted to trade with deposited Internationally Tradable Foreign Currencies (ITFC) that are not immediately invested, while ensuring that the funds remain accessible to participants when needed.

Finance Minister Wale Edun emphasized that there will be no penalties or taxes associated with these deposits. However, banks are required to collect essential details from depositors, including identification numbers and the amount of ITFC to be deposited, while adhering to anti-money laundering regulations.

Market experts have largely welcomed the initiative, suggesting it could stabilize the forex market and reduce pressure on the naira. Analysts believe the scheme presents an opportunity to integrate foreign currencies into the formal economy, but some express concerns about the government’s trust deficit with citizens and the potential for money laundering.

As the naira continues to face depreciation, analysts predict that the success of this scheme will depend on restoring confidence among the public and ensuring robust regulatory measures are in place.

CBN also demanded that banks must not contravene anti-money laundering /Combating the Financing of Terrorism/Countering Proliferation Financing laws and regulations.

The regulator said the banks must conduct customer due diligence, “including identifying the beneficial owner of the funds on applicants who are transferring, repatriating, or depositing funds under the programme, based on an assessment of the applicable risks;

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