Nigeria removes the Dollar deposit cap as it liberalises the market.

Bloomberg – A week after weakening the naira and enabling it to trade more freely, Nigeria’s central bank has taken another move to enhance liquidity in the foreign exchange market by lifting limitations on dollar deposits at local banks.

Limits on the amount of dollars depositors might store and retain with local banks were implemented in 2021, according to the central bank, to discourage speculators from stockpiling foreign money. It worsened a money shortage and fueled an illicit market for dollars and transactions outside of the legitimate economy.

The Central Bank of Nigeria said in an emailed statement following a meeting with the heads of the country’s lenders that lifting the deposit cap, along with other measures to liberalise the foreign exchange market, would increase the supply of dollars, boost customer confidence, and ensure market stability. Deposits were limited to $10,000 per transaction, with a maximum of $20,000.

“Cash deposits into domiciliary accounts will not be restricted,” the central bank added, subject to banks doing due diligence on consumers. “Domiciliary account holders shall have unrestricted and unfettered access to funds in their accounts.”

The Nigerian central bank has abandoned the country’s multiple exchange-rate schemes, which has blocked off access to hard cash for many businesses and individuals, forcing them to rely on the unregulated black market. It depreciated the naira last week by allowing it to trade more freely, and it adopted the importers and exporters window as the single official exchange rate.

According to Abdulazeez Kuranga, a macroeconomic expert with Lagos-based Cordros Capital Ltd, the recent policy implies “domiciliary account holders can sell their dollars to banks, and the banks, in turn, can use it to fund obligations,” enhancing market liquidity.

In order to improve market confidence, the regulator told the meeting’s attendees that it will prioritise the payment of foreign-exchange forward contracts when they come due. It did not totally eliminate exchange regulations, stating that account users may utilise up to $10,000 in transactions every day.

Still, according to Mosope Arubayi, an economist at IC Group, partially lifting the limits “could over the next few months increase the supply of foreign exchange and increase government control over available foreign currency balances” in the nation.