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The Use Of Foreign Currency In Payment Of Salaries In Nigeria: The Legality Or Otherwise. – Financial Services


INTRODUCTION

There has been an increased number of remote employment as many
Nigerians have been employed by foreign companies and are paid in
foreign currencies. This has recently increased the trend of
currency substitution and dollarization of the economy.
1

In response to the development, the CBN has released several
circulars including the Currency Substitution and Dollarization of
the Nigerian Economy dated April 17, 2015 (“the
Guideline”) among others, in a bid to curb the incessant
currency substitution of the economy.

The CBN has in the circulars and statements on the subject made
heavy weather of the fact that local transactions expressed or
conducted in a currency other than the Naira, the legal tender in
Nigeria, are illegal.

This article seeks to examine the legality of the use of foreign
currency as a medium of exchange in the payment of salaries.

THE GUIDELINE- THE CURRENCY SUBSTITUTION AND DOLLARIZATION OF
THE NIGERIAN ECONOMY DATED APRIL 17, 2015.

The CBN by a circular dated April 17, 2015, to all banks in
Nigeria, reiterated that it is illegal and an offence 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 Manual and
Paragraph (XI) Section 4.2.1 of the Monetary, Credit, Foreign Trade
and Exchange Policy Guidelines for Fiscal Years 2014/2015.

By the circular, no business offer or acceptance (except
businesses in the oil and gas industry, maritime, aviation,
operators in the free trade zone, and selected government agencies)
should be consummated in Nigeria in any currency other than in
Nigeria.

In support of its stance, the CBN referred to Section 20(1) of
the CBN Act, 2007, which provides that the currency notes issued by
the Bank shall be legal tender in Nigeria at their fair value for
the payment of any amount.

Also, Section 20(5) forbids anyone from refusing to accept the
naira as a means of payment shall be guilty of an offence and
liable on conviction to a fine of N50,000 or 6 months
imprisonment.

Consequently, the CBN directed that deposit money banks
operating in Nigeria 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.

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 dealers’ outposts including hotels.

Also, the CBN threatened the possibility of sanctions to be
melted on any bank that breaches this regulation.

THE LEGALITY OF THE USE OF FOREIGN CURRENCY AS A MEDIUM OF
EXCHANGE IN PAYMENT OF SALARIES.

It is without a doubt that the CBN is statutorily empowered with
the approval of the finance minister, to issue guidelines from time
to time, to regulate the procedures for transactions in foreign
currency.2 Therefore, the CBN may prescribe the
circumstances and conditions under which other currencies may be
used as a medium of exchange.

However, the aforesaid regulations must not be inconsistent with
the provisions of the Foreign Exchange (Monitoring and
Miscellaneous Provisions) Act (“the FEA”). The FEA
provides that no person shall, in Nigeria, make or accept cash
payment, whether denominated in foreign currency or not, for the
purchase or acquisition of the following- (a) landed properties;
(b) securities, including stocks, shares, debentures and all forms
of negotiable instruments; and (c) motor cars, including other
vehicles of any description whatsoever.3

By the said provision, the FEA only prohibits using foreign
currency to purchase or acquire landed properties, securities, and
motor cars. Hence, the payment of salaries of an employee in
foreign currency is not prohibited by the Act.

Also, Section 20(5) of the CBN Act 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. The Section does not prohibit the use of other
currencies as a medium of exchange in payment of
salaries.4

Furthermore, parties may voluntarily agree that the transaction
or the payment should be in a foreign currency. This point was
further emphasised by the Court of Appeal, Nigeria in the case of
Teju Investment and Property Co. Ltd v
Subair5
. Therefore, the same will be
valid and legal if parties agree that salaries or bonuses paid
shall be in a foreign currency.

CONCLUSION

There is currently a lacuna in the FEA and the CBN Act on
whether an employer can use foreign currency as a medium of
exchange in payment of salaries. This is a controversial issue that
is yet to be resolved, hence, subject to interpretations and
arguments by professionals and experts.

Footnotes

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 (Monitoring and
Miscellaneous Provisions) Act

3. Section 22 of the Foreign Exchange (Monitoring and
Miscellaneous Provisions) Act

4. Section 20(5) of the Foreign Exchange (Monitoring and
Miscellaneous Provisions) Act

5. (2016) LPELR-40087 (CA)

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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