The Central Bank of Nigeria (CBN) recently announced that it had removed the foreign exchange restrictions on the importation of 43 items. The bank initially imposed these restrictions in 2015. The CBN believes that the restrictions might have contributed to the depreciation of the naira in the parallel foreign exchange market.
Streamlining the Naira's Multiple Exchange Rates
The CBN made its announcement on October 12, stating it had lifted the foreign exchange restrictions previously placed on the importation of 43 items. The bank expressed that this move aligns with its broader goal of consolidating the local currency's multiple exchange rates and controlling inflation.
The CBN provided an explanation for the removal of these restrictions, initially enforced on June 23, 2015. The bank stated that these restrictions compelled importers to source the scarce resources from the parallel market. Before the foreign exchange market reforms implemented by Nigerian President Bola Tinubu, the local currency had been trading at just under N500 per dollar for over a year.
Market Dynamics under Forex Restrictions
In the parallel market, where the US dollar was and still is widely available, importers had to pay premiums starting from 20% to acquire U.S. dollars. Some Nigerian economy experts argued that the official exchange rate greatly overvalued the local currency. Some even urged the central bank to depreciate the naira-to-dollar exchange rate, but this suggestion was opposed.
Forex Policy Reforms under Tinubu's Leadership
Following his inauguration as Nigeria's new leader, Tinubu reportedly instructed the CBN to abandon the fixed exchange rate regime. The central bank, now helmed by Olayemi Michael Cardoso, stated that the growing disparity between the official and parallel market exchange rate could suggest that the rate has not been establishing a clearing price.
The CBN's decision to remove restrictions, they argued, would not only promote "orderliness and professional conduct" but also ensure that market forces determine the exchange rate. The bank also asserted that the removal of these restrictions would benefit local producers through cheaper imported inputs, and consumers are expected to benefit from lower retail product prices.
Additionally, the bank anticipates that this policy change will result in the reopening of factories that had previously shut down.
Anticipated Impact of the Forex Policy Changes
The removal of foreign exchange restrictions is expected to have a significant impact on Nigeria's economy. By allowing market forces to determine the exchange rate, the Central Bank of Nigeria aims to bring stability to the local economy. The anticipated benefits for local producers and consumers, as well as the potential for job creation through the reopening of factories, signal a positive step forward for the country's economic landscape.
Frequently Asked Questions
Should You Buy Gold?
In times past, gold was considered a safe haven for investors in times of economic trouble. Many people are now turning their backs on traditional investments like stocks and bonds, and instead look to precious metals like Gold.
The gold price has been in an upward trend for the past few years, but it remains relatively low compared with other commodities like silver or oil.
Experts think this could change quickly. According to them, gold prices could soar if there is another financial crisis.
They also point out that gold is becoming popular because of its perceived value and potential return.
Consider these things if you are thinking of investing in gold.
- The first thing to do is assess whether you actually need the money you're putting aside for retirement. You can save for retirement and not invest your savings in gold. Gold does offer an extra layer of protection for those who reach retirement age.
- Second, make sure you understand what you're getting yourself into before you start buying gold.There are several different types of gold IRA accounts available. Each account offers different levels of security and flexibility.
- Last but not least, gold doesn't provide the same level security as a savings account. If you lose your gold coins, you may never recover them.
You should do your research before buying gold. You should also ensure that you do everything you can to protect your gold.
Is it possible to hold a gold ETF within a Roth IRA
Although a 401k plan might not provide this option, you should still consider other options like an Individual Retirement Account (IRA).
A traditional IRA allows contributions from both employee and employer. Another way to invest in publicly traded companies is through an Employee Stock Ownership Plan.
An ESOP provides tax advantages because employees share ownership of company stock and profits the business generates. The tax rate on money that is invested in an ESOP is lower than if it was held in the employees' hands.
Also available is an Individual Retirement Annuity. You can make regular payments to your IRA throughout your life, and you will also receive income when you retire. Contributions to IRAs do not have to be taxable
How much money should my Roth IRA be funded?
Roth IRAs let you save tax on retirement by allowing you to deposit your own money. These accounts cannot be withdrawn until you turn 59 1/2. However, if you do decide to take out some of your contributions before then, there are specific rules you must follow. You cannot touch your principal (the amount you originally deposited). This means that you can't take out more money than you originally contributed. If you take out more than the initial contribution, you must pay tax.
The second rule states that income taxes must be paid before you can withdraw earnings. Withdrawing your earnings will result in you paying taxes. Consider, for instance, that you contribute $5,000 per year to your Roth IRA. Let's also say that you earn $10,000 per annum after contributing. On the earnings, you would be responsible for $3,500 federal income taxes. This leaves you with $6,500 remaining. This is the maximum amount you can withdraw because you are limited to what you initially contributed.
So, if you were to take out $4,000 of your earnings, you'd still owe taxes on the remaining $1,500. You would also lose half of your earnings because they are subject to another 50% tax (half off 40%). So even though you received $7,000 in Roth IRA contributions, you only received $4,000.
There are two types if Roth IRAs: Roth and Traditional. Traditional IRAs allow for pre-tax deductions from your taxable earnings. To withdraw your retirement contribution balance plus interest, your traditional IRA is available to you. There is no limit on how much you can withdraw from a traditional IRA.
A Roth IRA doesn't allow you to deduct your contributions. Once you are retired, however, you may withdraw all of your contributions plus accrued interest. There is no minimum withdrawal required, unlike a traditional IRA. You don't need to wait until your 70 1/2 year old age before you can withdraw your contribution.
What are the pros & cons of a Gold IRA?
The main advantage of an Individual Retirement Account (IRA) over a regular savings account is that you don't have to pay taxes on any interest earned. An IRA is a great option for those who want to save money, but don't want tax on any interest earned. However, there are disadvantages to this type investment.
For example, if you withdraw too much from your IRA once, you could lose all your accumulated funds. You may also be prohibited by the IRS from making withdrawals from an IRA after you turn 59 1/2. If you do decide to withdraw funds from your IRA, you'll likely need to pay a penalty fee.
You will also need to pay fees for managing your IRA. Many banks charge between 0.5% and 2.0% per year. Other providers may charge monthly management fees, ranging between $10 and $50.
You can purchase insurance if you want to keep your money out of a bank. Insurance companies will usually require that you have at least $500,000. Insurance that covers losses upto $500,000.
If you choose to have a gold IRA you will need to establish how much gold to use. Some providers limit the number of ounces of gold that you can own. Others allow you to pick your weight.
It's also important to decide whether or not to buy gold futures contracts. Gold futures contracts are more expensive than physical gold. However, futures contracts give you flexibility when buying gold. They let you set up a contract that has a specific expiration.
It is also important to choose the type of insurance coverage that you need. The standard policy doesn't include theft protection or loss due to fire, flood, or earthquake. It does include coverage for damage due to natural disasters. Additional coverage may be necessary if you reside in high-risk areas.
Insurance is not enough. You also need to think about the cost of gold storage. Storage costs will not be covered by insurance. Additionally, safekeeping is usually charged by banks at around $25-$40 per monthly.
To open a IRA in gold, you will need to first speak with a qualified custodian. A custodian is responsible for keeping track of your investments. They also ensure that you adhere to federal regulations. Custodians cannot sell your assets. Instead, they must retain them for as long and as you require.
After you have decided on the type of IRA that best suits you, you will need to complete paperwork detailing your goals. You should also include information about your desired investments, such as stocks or bonds, mutual funds, real estate, and mutual funds. Your monthly investment goal should be stated.
You will need to fill out the forms and send them to your chosen provider together with a check for small deposits. The company will then review your application and mail you a letter of confirmation.
When opening a gold IRA, you should consider using a financial planner. Financial planners have extensive knowledge in investing and can help determine the best type of IRA to suit your needs. They can also help reduce your costs by suggesting cheaper options for purchasing insurance.
- Instead, the economy improved, stocks rebounded, and gold plunged, losing 28 percent of its value in 2013. (aarp.org)
- Indeed, several financial advisers interviewed for this article suggest you invest 5 to 15 percent of your portfolio in gold, just in case. (aarp.org)
- If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal, so you would owe income tax on the item's value and, if you are younger than 59 ½, an additional 10% early withdrawal penalty. (forbes.com)
- Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. (aarp.org)
- Contribution limits$6,000 (49 and under) $7,000 (50 and up)$6,000 (49 and under) $7,000 (50 and up)$58,000 or 25% of your annual compensation (whichever is smaller) (lendedu.com)
- Saddam Hussein’s InvasionHelped Uncage a Bear In 1989 – WSJ
- How do you keep your IRA Gold at Home? It's not exactly legal – WSJ
3 Ways to Invest Gold for Retirement
It's important to understand how gold fits in with your retirement plan. There are many ways to invest in gold if you have a 401k account at work. You may also want to consider investing in gold outside of your workplace. If you have an IRA (Individual Retirement Account), a custodial account could be opened at Fidelity Investments. Or, if you don't already own any precious metals, you may want to consider buying them directly from a reputable dealer.
If you do invest in gold, follow these three simple rules:
- Buy Gold With Your Cash – Do not use credit cards to purchase gold. Instead, deposit cash into your accounts. This will help protect you against inflation and keep your purchasing power high.
- Physical Gold Coins to Own – Physical gold coin ownership is better than having a paper certificate. Physical gold coins are easier to sell than certificates. Also, there are no storage fees associated with physical gold coins.
- Diversify Your Portfolio. Never place all your eggs in the same basket. By investing in multiple assets, you can spread your wealth. This will reduce your risk and give you more flexibility in times of market volatility.
By: Terence Zimwara
Title: Reformation of Forex Regulations in Nigeria
Sourced From: news.bitcoin.com/nigerian-central-bank-lifts-forex-restrictions-on-43-items-market-forces-to-determine-exchange-rate/
Published Date: Sun, 15 Oct 2023 07:30:06 +0000