For a very long time, Nigerians have been evading their local currency in efforts to hedge value inflation and volatility.
With the recent significant incidents of inflation that have hit Nigeria over the last decade, it is no surprise that the currency is suffering. Many citizens have noticed this and are referring to alternative foreign currencies to cut losses.
Major Updates
- CBN attempts to control the use of foreign currencies nationwide.
- Naira reached a massive 409.35/$ as reported on Wednesday.
- Experts believe a diversified economy could be a potential solution.
According to a published paper by the Central Bank of Nigeria, locals have been raking in many foreign currencies as substitutionary to Naira —including cryptocurrencies. This is majorly directed at the poor state of Naira but, in turn, is worsening inflation rates.
The paper stated that the currency's inflation rate is associated with the rate of currency substitution that is currently on the rise in Nigeria.
So far, the ratio of foreign currency accounts to local currency accounts in banks has before crossed the 90% mark. This occurred in 2014 before later dropping to about 83% in 2018. All together, values have stayed with the International Monetary Fund threshold, but fairly enough, numbers still need to be contained.
Adding to the woes of the currency devaluation, Nigeria experienced two terrible economic blows due to the coronavirus pandemic. This led to oil prices crashing and hence the economy. This is a result of heavy reliance on the oil sector of the economy.
Generally, the country has suffered a horrific currency devaluation over the last decade. So much so that at the beginning of 2009, one naira was 149 units per dollar. But now, a Naira previously reported in Lagos has reached 409.35 units per dollar. This is the highest reported price urge in four years.
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Conclusion
This huge inflation follows a warning announced by the Central Bank against merchants exchanging local commodities for foreign currencies. The warning also included a block of access from foreign currency markets for local monetary transactions.
Furthermore, experts say a great solution to the problem at hand lies in Nigeria’s mono-economy system. It is a rather harmful form of economy and has done more harm than good. A more diversified economy would lay a good foundation against inflation.
Question of the Day
What do you think about the rising inflation rates in Nigeria?
