Corporate Law firm Templars has weighed in on the controversial forex circular issued by the CBN basically criminalising the invoicing of goods and services in dollars. The Law firm, in its report titled “Why the Central Bank is Legally Wrong on Dollarisation” takes on a different interpretation of Section 20(5) of the Central Bank of Nigeria Act, 2007 which the CBN based the criminalization of dollarising the economy on.
The report first explains the definition of a Legal Tender
As a matter of law, legal tender simply and squarely means such money as cannot legally be rejected locally in settlement of debts expressed in local currency. In relation to debts expressed in foreign currency but payable locally, the harshest impact that the concept of legal tender could have is that the debtor may have a general right of conversion to local currency. In other words, the debtor may either pay in the stated foreign currency (if he so chooses) or he may exercise his right of conversion and pay in the local currency equivalent and, given that the legal tender cannot legally be rejected, the creditor may be compelled to accept the local currency payment.
Interpreting the section of the Law CBN quoted
Although the CBN has never fully explained the legal basis for the steps it has taken to date on this subject, it is very likely that it has relied on a certain provision of the CBN Act that appears to give the CBN the power to prescribe when foreign currencies may be used in Nigeria.
This provision is to be found in the proviso to the penalty for the breach of the legal tender rule. By section 20(5) of the Act, it is provided 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.”
They opine that the CBN may have misinterpreted the act
Read in a vacuum, it is possible to conclude that the above-highlighted proviso empowers the CBN without limitation to make prescriptions on or (as it appears to have done) proscribe the use of currencies other than the Naira as means of exchange in Nigeria. However, if the proviso is read within the specific context of the penalty section to which it is appended and if also account is taken of the true meaning of the concept of legal tender, the proper conclusion should be different. As the courts in Nigeria and England have decided consistently in a long line of cases, “as a general rule, a proviso is of necessity limited in its operation to the ambit of the section which it qualifies …. The object of a proviso is normally to cut down or qualify what has been stated before in a section. A proviso does not set out to allocate powers or jurisdiction …. Its function is to create exceptions or relax limitation in a defined sense, or to throw light on any ambiguous import in an enactment…”
As already stated, the fact of the Naira being stipulated by law as legal tender does not amount to the exclusion of the voluntary adoption of other media of exchange between contracting or trading parties. Indeed, parties may well decide to exchange goods and services for non-monetary considerations without offending the provisions of the CBN Act relating to the Naira as legal tender. It would therefore have been totally unnecessary for the lawmaker to, in introducing the penalty for refusal to accept the legal tender, go to the trouble of creating a proviso that would have the effect of empowering the CBN to grant the public a right that the public always had and that had not been taken away by the CBN Act in the first place or any other law for that matter.
Why the CBN rule is Draconian
Going as far as it now has to purport to prevent everyone in Nigeria from freely agreeing to settle local debts with foreign currency that is properly obtained from sources outside the official foreign exchange market is rather extreme. Asking banks to get into the business of policing the currency in which people transact business, or to re-write the payment terms in their customers’ contracts, or to desist from collecting or paying out foreign currencies on behalf of their customers for local transactions is even more extreme and downright draconian.
Quite apart from the legal objections to the CBN’s recent actions on this subject, there appear to be other sound reasons for the CBN to rethink its position.
You can get the full report here