Central Bank of Nigeria Policy

The Central Bank of Nigeria (CBN) recently released a circular to all banks in Nigeria dated 17th April 2015, which stated that it was “illegal to price or denominate the cost of any product or service (Visible or Invisible) in any foreign currency in Nigeria and no business offer or acceptance should be consummated in Nigeria in any currency other than the Naira”. The Circular further advised commercial banks “to desist from the collection of foreign currencies for payment of domestic transactions on behalf of their customers and the use of their customers’ domiciliary accounts for making payments for visible and invisible transactions (fees, charges, licenses e.t.c) originating and consummated in Nigeria”.

In light of this publication and the general reactions to the same by members of the public as well as concerned stakeholders, this paper seeks to discuss its legality, interpretation and potential difficulties, which may arise as a result of its implementation.

Legality of the Circular

From our review of the Central Bank of Nigeria Act 2007 (the Act), as well as the Banks and Other Financial Institutions Act Cap B3 LFN 2004 (BOFIA), the functions of the CBN include regulating commercial banking activities in Nigeria, with a view to promoting a sound financial system in Nigeria amongst other things. Sections 51 of the Act and 57 of BOFIA empower the Board and the Governor of the CBN to make regulations for the operations and control of the Bank and all institutions under the supervision of the Bank respectively. Section 57 of BOFIA states that:

“The Governor may make regulations, published in the Gazette, to give full effect to the objects and objectives of this Act. “

Without prejudice to the provisions of subsection (1) of this section, the Governor may make rules and regulations for the operation and control of all institutions under the supervision of the Bank.

It is clear from the provision cited above that for any rule or regulation made by the CBN to have the force of law, it must be made by the Governor of the CBN and published in the official gazette of the Federation (“Federal Gazette”). We note that the Director of Banking Supervision signed the circular and not the Governor of the CBN as required by section 57 Of the BOFIA. The Supreme Court in Union Bank Plc v Ayodare & Sons Nigeria Limited[1] affirmed the principle that, “a delegate cannot delegate” which is in consonance with the latin maxim delegatus non protest delegare.

There is a plethora of judicial authorities on the principle that subsidiary legislation (in this instant, the circular), must conform to the principal law[2]. In addition, even if the Governor had signed the circular, it has to the best of our knowledge not been published in the Federal Gazette and we are of the opinion that it does not have the force of law. Consequently any bank, which refuses to carry out the instructions of its customer by refusing to transfer funds to another local account on the premise of the circular[3], is exposing itself to potential lawsuits.

The above position is reinforced by the decision of the Supreme Court in Zacheus Abiodun Koya v UBA Ltd[4] where the court stated that “Where, for instance, the currency of a contract made, executed and enforceable in Nigeria is in foreign currency, our courts of competent jurisdiction in my opinion, have power to enter judgment in such foreign currency”. Also the same court held similarly in S.S GMBH v TD Ind Ltd[5] that “… it is no longer in doubt and this is settled that parties can make an agreement or enter into a contract, to pay in foreign currency and a Nigerian Court, can in its discretion, award same accordingly”.

Legal Tender

The legal tender in Nigeria is the Naira as stipulated in Section 15 of the Act. Section 20 (5) of the Act further provides that:

“A person who refuses to accept the Naira as a means of payment is guilty of an offence and liable on conviction to a fine of N50, 000 or 6 months imprisonment:

Provided that the Bank shall have powers to prescribe the circumstances and conditions under which other currencies may be used as medium of exchange in Nigeria.

There is a school of thought on the interpretation of section 20 (5), to suggest that the effect of the Circular is an attempt to amend the first paragraph of sub section 5, which permits the use of currencies other than the Naira, where both parties agree.

It is trite that the primary rule in the interpretation of statutes is the literal rule. Therefore, it is only where the literal interpretation of a statute will lead to absurdity or ambiguity, that the other rules of interpretation are considered.[6] Section 20 (5) of the Act only makes it illegal where a person refuses the Naira as a means of payment. Consequently, where parties to a contract have negotiated and agreed that consideration should be paid in any other currency other than Naira they are within the confines of the law. It is therefore arguable that the CBN through the circular has surreptitiously attempted to amend the Act, by criminalizing the payment for domestic transactions in any currency other than the naira.

On the other hand, whilst it is true that Section 15 of the Act provides that the unit of currency in Nigeria is the Naira, the CBN is also empowered to prescribe circumstances in which parties to a local transaction may use foreign currency. It is therefore also arguable that the CBN’s interpretation of the proviso in Section 20(5) of the Act, which empowers it to prescribe the circumstances and conditions under which other currencies may be used is wide enough to empower it to restrict its use for every local transaction whether or not parties agree that they wish to conclude such local transaction in any currency other than Naira.

Practical Contractual Challenges

Assuming without conceding that the CBN’s interpretation of the Act was correct and the circular was brandished with the force of law, it will mean that existing domestic contractual obligations to make payment in dollars will face possible “force majeure” or “change of law” as a result of the fundamental change of circumstances, which would render the agreed payment illegal.

The challenging effect of this would be agreeing to a benchmark for the agreed price. Alternatively, the advisers of parties to such contracts would be constrained to devise ingenious means of circumventing the provision of the circular, which may include routing the payment of consideration in foreign currency from offshore accounts set up in neighboring countries with less stringent foreign exchange regulations.

The burdensome ripple effect of the above-mentioned alternative is that it inadvertently becomes a blessing to neighboring countries with less stringent foreign exchange regulations. We believe that the implementation of the circular will witness an increase in the financial tourism of neighboring countries and ultimately lead to an increase in their foreign exchange reserves to the detriment of Nigeria. Being a country on the brink of recovering from the depletion of its foreign reserves, we should not be seen as intentionally formulating policies or making regulations that hinder economical development.

Conclusion

Despite numerous circulars and publications on rescuing the Naira, it’s value is still on a steady decline and it appears that the apex bank has once again failed to consider a holistic resolution to the devaluation of the Naira in releasing the circular. Whilst the intention of the apex bank is nationalistic, as it appears to promote the use of the local currency in the country, the bank has failed to follow the laid procedure in Section 57 of the BOFIA to give the policy the requisite force of law. Therefore, a customer may have a right of action against any bank that refuses to honour its instructions to transfer funds to a local account based on the circular.

[1] (2007) 13 NWLR (Pt.1052) 567.2

[2] The supreme Court Amasike v Reg. Gen CAC 2010 13 NWLR (pt 1211) p. 337 at 399 paras B-C “a public body or authority vested with statutory powers must act within the law and take care not to exceed or abuse its powers. It must keep within the limites of the authority given to it”.

[3] Defined by the Oxford Dictionary as “a letter or advertisement, which is distributed to a large number of people”.

[4] (1997) 1 NWLR Pt 481 P.251 Per Iguh Jsc

[5] (2010) 11 NWLR pt 1206 p. 589 Per Ogbuagu Jsc

[6] See the Supreme Court decision in Ojukwu v Obasanjo (2004) FWLR (Pt. 222) 1666