Skip to main content

Nigerians Shun Local Currency— Seek to Protect Wealth From Inflation and Currency Depreciation with Foreign Currency

Nigerians are thought to be accumulating foreign currencies which they believe will protect their wealth from the naira’s volatility as well as the surging inflation. Further, as a research paper in a journal published by the Central Bank of Nigeria (CBN) found, Nigerians’ use of dollars exceeds IMF’s 30% threshold.

Exchange Rate Volatility and Currency Substitution

According to a report, this preference for foreign currencies (or currency substitution as CBN economists call it) however, needs to be contained in order to maintain the effectiveness of the central bank’s monetary policy. Remarking on the importance of curbing this currency substitution phenomenon, three CBN economists said:

Higher real-exchange rate volatility is associated with an increased level of currency substitution. (Therefore) there is a need to contain “exchange-rate volatility and inflation as a way of curbing the spate of currency substitution in the country.

Meanwhile, the report also quotes the economists explaining how one measure of currency substitution, “the ratio of foreign cash deposits to naira deposits on-demand in the banks exceeded the IMF’s 30% threshold from 2009 following the global financial crisis.” According to the researchers, this ratio only “hit a peak of 98.2% in 2014 before declining to 83% in 2018.”

IMF Threshold

Nevertheless, the broader measure of foreign currency in banks to naira savings, demand and term deposits “stayed largely within the IMF limit over the study period from 1995 to 2018.” On the other hand, Nigeria’s inflation rate quickened “to the highest level in four years in March and is now more than double the 9% limit of the central bank’s target range.”

In the meantime, as part of its response to the currency substitution phenomenon, the CBN has previously asked: “merchants to stop offering local goods in foreign currency.” The central bank also “banned the practice of accessing the foreign-exchange market for settling domestic transactions.” However, in early February of 2021, the CBN’s war against currency substitution was broadened to include cryptocurrencies. Just like foreign currencies, cryptos also act as a hedge against inflation and currency depreciation.

Meanwhile, the three Nigerian economists believe that diversifying the economy “should be of paramount interest to boost the base for foreign-exchange earnings.”

What are the other reasons why Nigerians prefer holding US dollars? Tell us what you think in the comments section below.



from Bitcoin News https://ift.tt/3ndYavw
Labels:

Comments

Post a Comment

Popular posts from this blog

Deep Web Roundup: Dream Adds Monero and Bitcoin Tumbler “Chip Mixer” Launches

The darknet has been quiet of late, which is the way it’s meant to be. No news means no mega busts, honeypots, or mass market shutdowns. Even when it’s out of the spotlight though, the deep web is quietly making news, whether trialling the latest privacy coins or the newest coin mixers that promise to restore a little of the privacy that’s being stripped away from bitcoin users on a daily basis. Also read: U.S. Agency ICE Conducts Investigations That Exploit Blockchain Activity The Battle for Privacy Heats Up Privacy is all relative, but of late there’s been relatively little privacy to be enjoyed by bitcoin users. Blockchain monitoring software is becoming more sophisticated and more common, with U.S. law enforcement agencies using it to profile and hunt down deep web users. Chip Mixer is a relatively new bitcoin tumbler that’s designed to restore some of that privacy. Available on both the clearnet and darknet, the service uses a variety of techniques to obfuscate blockchain m...
10 comments
Read more

Ombudsman Receives Complaints About Crypto Investments in Spain

The Spanish ombudsman has been receiving complaints about cryptocurrency and how some Spanish citizens investing in these vehicles have lost everything. In his annual report, Angel Gabilondo recognized the rise of cryptocurrencies as a new problem due to the little or no regulation crypto sees in the country. In the same way, the EU has also warned about these assets recently. Spanish Ombudsman Gives His Take on Crypto Angel Gabilondo, the Spanish ombudsman, has given his take regarding cryptocurrencies and the effects they have on citizens investing in some of these projects. Gabilondo said in his yearly report that cryptocurrencies have become “a new problem” during the year examined, with many people having lost all of their funds invested. The report states : Cryptocurrency exchange companies or platforms are not regulated in the legal system, are not subject to any public supervision system, nor do they benefit from deposit guarantee systems. The affected users that sought...
Post a Comment
Read more

2021 Bitcoin Price Predictions: Analysts Forecast BTC Values Will Range Between Zero to $600K

As bitcoin has touched new price highs on Thursday nearing the $50k handle, people have been curious as to where the price will go in the future. Meanwhile, despite the gains so far, a number of luminaries, analysts, executives, and proponents from the crypto space believe the leading crypto asset will reach between $60k to six-digits this year. Mike Novogratz Predicts $100K Bitcoin: ‘Other CFOs and CEOs Are Saying, What Should We Be Doing?’ Satoshi Nakamoto’s invention has gained mass appeal in recent times as the leading digital asset bitcoin ( BTC ) has reached its highest value ever in 2021. On Thursday morning (EST), BTC spiked to an all-time high (ATH) at $48,697 per unit. Earlier in the morning at around 2 a.m., bitcoin was exchanging hands for $44,485 and saw an 8.98% increase since then. At the time of publication, at 6:30 p.m. (EST) on February 11, 2021, bitcoin (BTC) is swapping for $47,821 per coin. With BTC so close to the $50k mark, people have been forecasting ...
Post a Comment
Read more