There has been an increase in the number of remote jobs as many Nigerians have been employed by foreign companies and are paid in foreign currencies. This has recently reinforced the trend of currency substitution and dollarization of the economy.
In response to this development, the CBN issued several circulars, including the Currency Substitution and Dollarization of the Nigerian Economy dated 17 April 2015 (“the Directive”), among others, with the aim of curbing the relentless substitution of currencies of the economy.
The CBN has, in circulars and communiqués on the subject, reviled the fact that local transactions expressed or carried out in a currency other than the Naira, the currency having legal tender in Nigeria, are illegal.
This article aims to examine the legality of using foreign currency as a medium of exchange in the payment of wages.
THE GUIDELINE – CURRENCY SUBSTITUTION AND DOLLARIZATION OF THE NIGERIAN ECONOMY AS OF 17 APRIL 2015.
The CBN, through a circular dated April 17, 2015, addressed to all banks in Nigeria, reiterated that it is illegal and an offense to price or denominate the cost of any product or service in any other foreign currency. The Circular supersedes the provisions of Memorandum 16 of the Central Bank of Nigeria Foreign Exchange Handbook and Paragraph (XI) Section 4.2.1 of the Guidelines on Monetary, Credit, Foreign Trade and Exchange Rate Policy for the Financial Years 2014/2015 .
According to the circular, no commercial offers or acceptances (except oil and gas, maritime, aviation industry companies, free trade zone operators and selected government agencies) shall be consummated in Nigeria in a currency other than in Nigeria.
In support of its position, the CBN referred to Section 20(1) of the CBN Act 2007, which provides that notes issued by the Bank shall be legal tender in Nigeria at their fair value for payment of any amount.
Further, Section 20(5) prohibits anyone from refusing to accept naira as a means of payment shall be guilty of an offense and liable on conviction to a fine of 50,000 naira or 6 months imprisonment. imprisonment.
Accordingly, the CBN has ordered that depository banks operating in Nigeria refrain from collecting foreign currency for payment of domestic transactions on behalf of their clients and from using their clients’ domiciliary accounts to make payments for visible and invisible transactions (fees, charges, licenses, etc.) originating and consumed in Nigeria.
This was, however, without prejudice to foreigners, visitors and tourists who are encouraged to use their cards for payments or exchange their foreign currency for local currency at any of the authorized reseller outposts, including hotels. .
In addition, the CBN has threatened the possibility of sanctions being melted against any bank that violates these regulations.
THE LEGALITY OF THE USE OF FOREIGN CURRENCY AS A MEDIUM OF EXCHANGE IN THE PAYMENT OF SALARIES.
There is no doubt that the CBN is statutorily empowered, with the approval of the Minister of Finance, to issue directives from time to time, to regulate the procedures of foreign currency transactions.2 Therefore, the CBN may prescribe the circumstances and conditions under which other currencies may be used as a medium of exchange.
However, the foregoing regulations shall not conflict with the provisions of the Foreign Exchange (Supervisory and Miscellaneous Provisions) Act (“the FEA”). The FEA provides that no person shall in Nigeria make or accept payment in specie, whether denominated in foreign currency or not, for the purchase or acquisition of the following: (a) landed property; (b) transferable securities, including stocks, shares, debentures and all forms of negotiable instruments; and (c) automobiles, including other vehicles of any kind.3
By the said provision, the FEA only prohibits the use of foreign currency to purchase or acquire landed property, securities and motor cars. Therefore, payment of an employee’s wages in foreign currency is not prohibited by law.
Further, Section 20(5) of the CBN Act provides that a person who refuses to accept Naira as a means of payment is guilty of an offense and liable on conviction to a fine of 50 000 N or 6 months imprisonment. The Section does not prohibit the use of other currencies as a medium of exchange for the payment of wages.4
In addition, the parties may voluntarily agree that the transaction or payment must be made in a foreign currency. This point was further emphasized by the Court of Appeal of Nigeria in the case
Teju Investment and Property Co. Ltd v Subair5 . Therefore, the same will be valid and legal if the parties agree that the salaries or bonuses paid must be in a foreign currency.
There is currently a loophole in the FEA and the CBN Act as to whether an employer can use foreign currency as a medium of exchange for the payment of wages. This is a controversial issue that has not yet been resolved, therefore subject to the interpretations and arguments of professionals and experts.
1. Ripples Nigeria https://www.ripplesnigeria.com/ripplesmetrics-how-weak-naira-eroded-salary-of-nigerians-by-24-5-in-two-years/
2. Section 1(2) of the Foreign Exchange (Supervision and Miscellaneous Provisions) Act
3. Article 22 of the Law on Foreign Exchange (Supervision and Miscellaneous Provisions)
4. Section 20(5) of the Foreign Exchange (Supervisory and Miscellaneous Provisions) Act
5. (2016) LPELR-40087 (CA)
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.