A Foreign Currency Account or Domiciliary Account refers to an array of bank accounts dominated in currencies other that the currency of the home country where the bank operates. In the case of Nigerian such accounts includes Dollar Account (USD), Pound Sterling Account (GBP), Japanese Yen (JPY) and all other account that are not Naira denominated.
Foreign Currency Account has been made more popular in Nigerian banks by customers who are aware of the importance of having their wealth stored or transact their businesses with foreign currencies. More importantly hedge against fluctuating local currencies that have either been devalued by the result of deliberate government policies or by market forces.
Nigeria’s heavily dependent on the importation of both raw materials for production and finished goods for consumption as well as foreign services and the consequent effect of scarcity of much-needed foreign exchange is also a major factor that necessitates the keeping of a foreign currency account.
Here are 5 reasons why you need a Foreign Currency Account (Domiciliary Account).
Store of value and Hedging
One most important reasons why Nigerians maintain domiciliary accounts is to be able to edge against the depreciating Naira. The value of Foreign currencies especially Dollars has increases significantly in the past years, thus making whoever must have stored his money in Dollars several times richer that people that has maintained their money in Naira.
Payment of foreign services and professional bodies
One of the options available for local bank customers to make payments for foreign services such as a mortgage, health bills, foreign professional membership, and so on, is to maintain and fund their domiciliary account. It is from the account they can make direct transfers to the accounts of the foreign service providers and make payments directly for professional membership and others. This will help to aid the customer in a business relationship and avoids long procession procedures that may be associated with sourcing for forex from CBN through the processing of form As.
Payment to Foreign business partners.
As an alternative to sourcing foreign exchange from CBN to pay for imported goods and services, some businesses maintain and fund their domiciliary account to be able to make such payments instantly from their domiciliary accounts. There are however regulatory limits to the frequencies and the amount that can be transferred to business partners abroad if the funds in the domiciliary account are linked to cash lodgment instead of foreign inflows.
Receipt of Foreign inflows
As an alternative to allowing your bank to change your foreign currency inflows to Naira and credit your Naira account with the value. Maintaining a Foreign Currency Account allows you to receive funds directly from your Foreign business partner/s into your domiciliary account from where you can withdraw the same and sell to a Bureau de change operator at a rate most probably higher than the bank rate.
However, It is important to note that being able to withdraw your foreign currency inflow depends on regulation. In some cases, the CBN only allows you to sell the inflow to another customer who needs the same for payment for their importation.
Investment in Dollar Mutual Funds
A few Nigerian banks allow their customers to invest in mutual funds denominated in foreign currency, especially in USD. Maintenance of a domiciliary account from where the investable funds are drawn and paid into is a prerequisite to being part of the mutual fund investment in Dollars.