Discretionary (Illicit) FX Demand Fuels Naira Instability
Oyedele underlined that Nigeria's biggest foreign exchange challenge isn’t lack of FX supply but rather discretionary demand, especially among elites and public officials .
In the public sector, disbursement patterns like FAAC (Federation Account Allocation Committee) releases often coincide with spikes in dollar demand, destabilising the naira .
In the private sector, high-net-worth individuals, fearing further naira depreciation, convert their holdings into dollars, reinforcing the cycle of depreciation—a self-fulfilling prophecy .
Reserve Accumulation Reflects Damaging Speculative Behavior
The balance in domiciliary accounts (accounts holding foreign currency) reportedly rose by over $6 billion in the last 18 months, exceeding $30 billion total .
Oyedele recounted an anecdote where even wealthy individuals, having converted their naira savings, lacked local liquidity when needed—highlighting how speculative behavior undermines economic functionality .
Tax Policies and Reforms Are Part of the Fix
The reform agenda includes proposals to stop requiring taxes in foreign currency, which adds unnecessary pressure on the FX market .
Early “Quick Win” recommendations from his committee also suggest imposing excise taxes on FX transactions conducted outside the official window—aiming to curb parallel market activity and speculative demand .
Additionally, reforms are pushing for tax harmonisation, digitalisation of FX controls, and reducing the burden of multiple taxation across government tiers .
Optimism for a More Stable Naira Ahead
Oyedele remains cautiously optimistic: with discretionary demand dampened, increased output in agriculture, oil, and gas, and a moderation in monetary policy rates, the naira could stabilize or even appreciate .
He also emphasized that addressing tax system inefficiencies and curbing illicit FX demand would ease pressure on monetary policy authorities.
Summary Table
Issue Description
Discretionary FX Demand Artificial demand via corruption and speculation, not fundamental pressure
Domiciliary Accounts Rise Over $6B added in 18 months; total above $30B indicates hoarding/saving in FX
Tax in Foreign Currency Imposes unnecessary FX demand; to be disallowed under new tax reforms
Excise Taxes on FX Transactions Proposed on parallel market transactions to discourage unofficial FX dealings
Path to Stability Reduce illicit demand + spur real economic activity + simplify fiscal policies
What It All Means
Fiscal discipline matters for FX stability. Requiring taxes in foreign currencies doesn't just hurt businesses it creates artificial market pressure.
Elite behavior matters. When high-net-worth individuals and officials hoard dollars, they undermine public trust and destabilize the naira.
Reforms are comprehensive. Beyond FX interventions, efforts span tax harmonisation, system digitalisation, and removing systemic burdens on businesses.
Hope ahead but need execution. Oyedele’s confidence hinges on effective implementation, real sector growth, and coherent fiscal and monetary coordination.
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