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.
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.
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)
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