Tim Harford* Explains The New CBN Forex Guidelines

Guy, how far? All the papers this morning are reporting that CBN has banned the importation of foreign exchange? I know we import a lot of things in Nigeria, but we dey import money before?

Don’t mind our newspapers. Because of the way the word ‘ban’ is used in Nigeria, people will read the papers and think you are no longer allowed to bring forex into the country. That’s not the case.

So wetin happen? Because you dey talk, your mouth dey move but I no hear anything o

Well the CBN announced 5 new forex policies last week. So its not just a case of something was banned or not

[Grabs chair] Oya start from the first one furstofall

Firstly it has suspended the system it used to sell forex to the banks. It was known as WDAS. This has now been replaced by RDAS

Wada Nas? That Abacha Special Duties guy still dey?

WDAS means Wholesale Dutch Auction System. A bank will collect requests from its customers who want to purchase forex. It will then take the total amount to the auction where CBN will sell the forex to them. For example, 100 customers of a bank might say they want $100,000 each. The bank will then go to the auction hoping to buy $10m from CBN. But CBN used to sell a certain amount of money every week and there would be plenty banks competing (with their customers’ requests) competing for the forex on offer by CBN.

So the only way for CBN to sell the forex is through an auction system. It will offer the money at a certain price say N160 to $1 and anyone who wants to buy at that amount will buy or it will reduce its asking price to N158. Until all the money on offer is sold. The auction holds every week and the CBN announces how much it will be selling in advance. For example, the CBN offered $400m in the last auction in September

This thing be like market. How come I never knew about it? Na coded something? I for like go hustle see if I fit buy dollars na

Notice the name is ‘Wholesale’? It is not an open market where anyone can come and buy. So only banks are allowed to come and buy on behalf of their clients.

So why are they changing it and to what?

The new system is RDAS – Retail Dutch Auction System. CBN is worried that the demand for forex is being driven by ‘fake’ economic activity especially money laundering and politicking. The RDAS is similar to the WDAS but now banks will have to ‘show their workings’ i.e. they will have to show the details of the person on whose behalf they are ordering the forex. In short, CBN will be collecting more information to enable it monitor what exactly is going on. In short it is tightening the rules on how forex can be bought.

So even as this one na retail, guys still no fit show there?


 Ok, the second one

The second change is mainly for people who travel abroad and use their Nigerian debit cards to make payments and purchases. Previously the maximum you were allowed to spend on your Nigerian debit card outside the country in one year was the equivalent of $40,000. Now CBN has raised this to $150,000.

That one na for people wey get money to spend. No time abeg. The 3rd one

This is the one that has caused all the ‘ban’ headlines. In the past, authorised dealers were allowed to import foreign currency notes into the country as part of their business. This is what the CBN gave them the authorisation for. But now CBN is saying ‘even though we have authorised you to import forex, you still have to tell us before you import the forex’.

In short, CBN doesn’t really trust the people it has authorised so it wants to micro-manage their operations. So authorised dealers now have to seek permission before importing. Of course this means that permission can be denied otherwise CBN won’t be doing this.

Now they will have to fill an application form and send it to Abuja for approval. This will obviously cause delays and a lot of paperwork so we have to wait to see how it works out

We like paper for this country sha. Why dem no fit use internet do all this kind thing? Me I no sabi use the thing but my 3rd born talk say nothing wey you no fit take internet do. Anyway, na dem know. 4th one?

This one is a bit confusing. Think of a hierarchy in how forex is bought and sold in Nigeria. At the top of the hierarchy is CBN. CBN sells to authorised dealers. Authorised dealers sell to Bureau de Change. Bureau de Change sells to regular people like you and me. Levels dey.

Currently ADs (authorised dealers) can sell a maximum of $250,000 per week to BDCs (Bureau de Change). Remember in the first point I mentioned that it’s the ADs who carry all the requests to the CBN auction? Now CBN has said that ADs have to carry out checks on the BDCs they deal with to make sure they are genuine. It has recently revoked the licences of 20 BDCs because it says they were being used for money laundering.

I’m guessing this means that if an ADs doesn’t check its BDCs and CBN finds something wrong, it can sanction the AD.

But what makes it slightly more confusing is that BDCs are now required to render weekly returns (more paperwork) on all the money they buy and sell directly to the CBN. So even though BDCs don’t deal directly with CBN, they still have to ‘show their workings’ to the CBN every week.

Hmmm…e be like CBN wan catch thief o? So if AD say ‘my BDC asked me to buy $10m for them’ and BDC submit return wey show say na only $5m dem collect, that is to say shirt don dey wear the AD be that?

Something like that….perhaps

 E remain one more change abi how many we don talk now?

Yes, the final change is the one that affects you, me and everybody else directly. I believe one of your brothers is in America?

Yes e dey America. Wetin concern CBN with that one?

I am sure he sends you money through Western Union and you collect it in dollars? Now CBN has said you can no longer do that. When you receive money through Western Union or Moneygram or any other such service, you will only be able to collect the money in Naira. Previously, people would collect the amount in dollars and go and change it at a better rate by themselves on the black market.

[Tears Shirt] Say wetin happen?? The banks will now use this as an opportunity to cheat me! This Sanusi sef, na everything the guy see e go squeeze? Wetin we do am?

I am sorry about this and you are right, the CBN Governor appears to enjoy squeezing things but I’m afraid this policy is now in effect.

The bank will now pay you the money at the ‘Interbank Rate’ for that day. All banks have now been told to clearly display the daily exchange rates in the banking halls in a way that everyone can see it. So if you want to collect Western Union and you enter one bank and see N158 to $1, you can check two or three other banks to compare rates before deciding where to collect from.

The CBN says its Consumer Protection Department will make sure people are not cheated by banks but we wait to see how this works.

This thing don spoil my belle. I dey go abeg….sebi na 5 things you talk? Later

Sorry I counted wrongly, there are actually 6 changes and as a trader, this last one affects you.

I no even know who confuse pass between you and CBN. Oya wetin? If na bad thing, I no wan know o

I am sure you are familiar with e-Form M?

I don hear person mention am before…

It is the form filled by importers who want to pay their suppliers abroad by bank transfer. The maximum amount you can pay in this way is $250,000. The good thing about this is that you can do it online and just submit the invoice with it.

Going forward however, you will need to submit the shipping documents within 90 days of making the payment. Again, the CBN is tightening the rules to make sure that people don’t transfer money abroad in the name of buying goods that never arrive.


So I go send the high sea papers to CBN?

No, you will submit it to your bank (AD) but if you refuse to submit the shipping papers, the AD must report you to CBN or else it will be sanctioned.

So always make sure you submit the shipping papers to your bank as soon as you receive them so no one gets into trouble.

Ok guy, you don talk 6 now. I swear even if e remain, I no wan know. I dey go house. We go dey talk another time. Na kuku everyday these people dey change their rules.

I have finished


*This blog post was inspired the man who turns Micro-economics into a mass market commodity, Tim Harford.

I have unashamedly copied his style – imitation being the sincerest form of flattery and all that. His latest such post is here (for the UK).



16 thoughts on “Tim Harford* Explains The New CBN Forex Guidelines

  1. Thanks for breaking it down. This morning, I listened to three people struggle with the interpretation of the forex guidelines during their newspaper review. Well done.

  2. Pingback: Tim Harford* Explains The New CBN Forex Guidelines | Y! Opinion

  3. Re; Form ‘M’……please tell me, (1), what happens if an importer is buying goods worth more than $250.000? (2)what happens if the AD already had a Form M issued last week for goods worth $5m & was about to send the LC out before this new directive. Many thanks

    1. In theory form M is supposed to make things easier by reducing the amount of paperwork. Hence the limit.
      If you need more than $250k then you will have to apply through an AD in the same way as before i.e fills lots of forms and submit plenty of paper

      ADs have no limits as far as I know given that they are buying on behalf of their customers. So the limits apply to BDCs and individuals as customers of ADs….if that makes sense

      1. Thanks a lot Feyi. The more things change, the more they remain the same!!! The guys at CBN want nigerians to see they are working, they need to justify the huge budget set aside for them……its all a ruse, its the outsiders that will feel there’s a tsunami, for those in the system, its still same ol’ game. thanks a lot though, for helping to simplify the new directives.

  4. Please how does this (especially No. 5) affect Forex Traders who make earnings receive as hard currency (USD, GBP, EUR) in their Dollar Accounts.

  5. Hello Feyi,
    Have you ever read the book “The GodFather Never Sleeps” by J.K. Randle? I suspect someday we can do that to your blog… very insightful as always

  6. Feyi, don’t you get tired of us saying kudos?!

    Very interesting indeed how government peeps keep changing things with such speed. The NBC and SEC (not to mention NUC, ala Feyi) seem to be some of the regulators holding on to lots of regulations that arent always changing, from what I know. NCC, NERC, CBN are always in the news with one new regulation or the other. Big budget, big news headlines!

  7. Dear FF,

    Double thumbs up for the breakdown…..this is a real “Dummy Guide” to new foreign exchange policies.

    I think I need to ‘alabaize/pirate’ this piece to my FB page to enlighten and entertain my fellow Nigerians. (please don’t sue me for copyright o…lolz)

    Thank you once again

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