Central Bank of Nigeria, currency depreciation, currency substitution, domestic transactions, Foreign exchange, IMF threshold, inflation, naira, volatility

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:

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.â€

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.â€

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.â€

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

Du lịch nhật bản, hướng dẫn du lịch Nhật và đánh giá địa điểm Nhật Bản Japan travel news, japan travel guides, japan holiday destinations and japan reviews

RELATED NEWS

Deutsche Bank Warns: Ignoring Rising US Inflation Akin to ‘Sitting on a Time Bomb’

Deutsche Bank published a report Monday noting that the United States is facing “the very real specter of consumer-driven inflation.†The bank’s chief economist David Folkerts-Landau and others notably highlight the Federal Reserve’s monetary easing policy and recent tolerance toward higher inflation. Deutsche Report: ‘Transitory Inflation Could Feed Into ’70s Style Stagflation’ The price of […]

Xem chi tiết: Deutsche Bank Warns: Ignoring Rising US Inflation Akin to ‘Sitting on a Time Bomb’

African Fintech Start-up Chipper Cash Raises $100 Million — CEO Says No Crypto Services for Nigeria

Chipper Cash, an African fintech firm that specializes in facilitating cross-border payments, recently closed a $100 million Series C funding round. Taking the lead in what is now Chipper Cash‘s third fundraising round in the past twelve months is the venture capital (VC) firm, SVB Capital. The VC firm is an investment arm of U.S. […]

Xem chi tiết: African Fintech Start-up Chipper Cash Raises $100 Million — CEO Says No Crypto Services for Nigeria

A Look at Why Venezuela Is the Third Country With the Most Crypto Adoption

Venezuela has been listed as the third country with the most cryptocurrency adoption in the world by Chainalysis in its 2020 report. With its citizens coping with crippling inflation and losing purchasing power, the country has taken a turn for these assets to survive. But what are the real numbers behind this crisis that made […]

Xem chi tiết: A Look at Why Venezuela Is the Third Country With the Most Crypto Adoption

BOJ’s Kuroda Criticizes Bitcoin — Central Bank Governor Says Trading Is ‘Barley Used for Settlement’

Following the recent developments in China and the environmental concerns about bitcoin’s energy consumption, the Bank of Japan Governor Haruhiko Kuroda criticized the leading crypto asset bitcoin in an interview on Thursday. BOJ’s Kuroda Says Bitcoin ‘Volatility Is Extraordinarily High’ Bitcoin prices have slumped again on Friday after a tumultuous week. After tapping a daily […]

Xem chi tiết: BOJ’s Kuroda Criticizes Bitcoin — Central Bank Governor Says Trading Is ‘Barley Used for Settlement’

Nigeria’s Naira Loses Ground on Forex Black Market Just a Few Days After Devaluation

The Nigerian naira currency lost further ground against major currencies after it depreciated to 493 nairas for one dollar on the black market on May 25, 2021. Before the latest depreciation, the currency had stabilized at around 485 nairas to the dollar. This was shortly after the exchange rate dropped to a three and a […]

Xem chi tiết: Nigeria’s Naira Loses Ground on Forex Black Market Just a Few Days After Devaluation

Market Forecaster Jim Bianco Says Ethereum Has a Lot of Upside, Investor Doesn’t Hold Bitcoin

On May 27, the president of Bianco Research, Jim Bianco explained during an interview that he believes there’s a lot of upside potential when it comes to the crypto economy. Bianco said since 2017 he’s owned a basket of crypto assets like ethereum, but he doesn’t hold bitcoin. Bianco Research President Owns a Basket of […]

Xem chi tiết: Market Forecaster Jim Bianco Says Ethereum Has a Lot of Upside, Investor Doesn’t Hold Bitcoin

A Look at Why Venezuela Is the Third Country With the Most Crypto Adoption

Venezuela has been listed as the third country with the most cryptocurrency adoption in the world by Chainalysis in its 2020 report. With its citizens coping with crippling inflation and losing purchasing power, the country has taken a turn for these assets to survive. But what are the real numbers behind this crisis that made […]

Xem chi tiết: A Look at Why Venezuela Is the Third Country With the Most Crypto Adoption

BOJ’s Kuroda Criticizes Bitcoin — Central Bank Governor Says Trading Is ‘Barley Used for Settlement’

Following the recent developments in China and the environmental concerns about bitcoin’s energy consumption, the Bank of Japan Governor Haruhiko Kuroda criticized the leading crypto asset bitcoin in an interview on Thursday. BOJ’s Kuroda Says Bitcoin ‘Volatility Is Extraordinarily High’ Bitcoin prices have slumped again on Friday after a tumultuous week. After tapping a daily […]

Xem chi tiết: BOJ’s Kuroda Criticizes Bitcoin — Central Bank Governor Says Trading Is ‘Barley Used for Settlement’

Bitcoin Adoption Picks up Steam in Peru After Presidential Ballot

Nigeria’s Naira Loses Ground on Forex Black Market Just a Few Days After Devaluation

White House Defends Trillion-Dollar Stimulus While Jamie Dimon and Larry Summers Warn of Runaway Inflation

Central Bank of Nigeria Governor Says “Digital Currency Will Come to Life” but Attacks Volatile Cryptocurrencies

Bank of England Governor Bailey Says Cryptocurrencies Are ‘Dangerous’

Bitcoin Adoption Picks up Steam in Peru After Presidential Ballot

Nigeria Bureau De Change Association Boss Accuses Speculators of Destabilizing the Naira— Says Central Bank Funding Will End Currency Woes

Nigeria Devalues Currency as Central Bank Moves to Unify Exchange Rates

Other Articles