The governor of the Central Bank of Nigeria (CBN) Godwin Emefiele says the embrace of the parallel market exchange rate by some professionals in that country is unfair and unfortunate. The CBN governor says the parallel foreign exchange market only accounts for a share of the market that does not exceed 5%. He also adds that this market is popular with corrupt individuals because it enables them to facilitate their illegal activities.
Parallel Market Tainted
Emefiele’s remarks were prompted by reports in late November that the local Naira currency has plunged to 1:480 against the U.S. dollar. This is in contrast with 1:380 which the CBN says is the actual rate.
In remarks made during the CBN’s monetary policy committee (MPC) press briefing on November 24, Emefiele decries the use of what he terms a “tainted market” to determine the national currency’s exchange rate. Describing the foreign exchange parallel market Emefiele says:
It is a tainted market where people who desire to deal in illegal foreign exchange transactions including sourcing of FX cash purposes of offering bribes, corruption…that is where they deal.
Throughout the short speech, Emefiele reiterates the belief that Nigerian analysts are abetting the use of the black market exchange rate for formal business transactions. Lamenting the apparent embrace and widespread use of the parallel market exchange rate, Emefiele repeats that it is unfortunate that “those who are supposed to know (are) trying to bend numbers in this country.”
Oil-rich Nigeria is facing significant shortages of foreign exchange as pandemic related restrictions have hemorrhaged the federal government’s revenue-generating capacity. Consequently, the CBN has been implementing measures that limit access to foreign exchange to a select group of businesses and individuals. Through directives, the central bank has asked banks to limit the amount of U.S. dollars that only Nigerian residents can withdraw.
Pivot to Crypto
However, the curbs on foreign exchange access have inadvertently pushed businesses and individuals towards cryptocurrencies. Using local cryptocurrency exchanges that enable the conversion from Naira to crypto and vice versa, small business owners have succeeded in remaining operational during the lockdown period.
Others now use cryptocurrencies as a payment method when making purchases online. Also, as News.bitcoin.com has previously reported, some Nigerian expatriates now send remittances using crypto platforms as they seek to avoid the CBN’s “fixed” exchange rate of 380 naira for every dollar. Using cryptocurrencies.
Meanwhile, Uzo Awili, the CTO with Quidax crypto exchange, agrees that increased cryptocurrency usage is a direct result of forex shortages and the associated restrictions. In comments made following the addition of Dash to the list of digital currencies supported by the African exchange, Awili says:
In the last few months, we have seen an increasing number of businesses and individuals use cryptocurrencies to send and receive money from around the world faster and cheaper than ever before. A number of these businesses and individuals used cryptocurrency for the first time this year and continued using it after that.
Nathaniel Luz, who represents Dash in Nigeria, explains that the country’s foreign currency shortages have shown Nigerians that cryptocurrencies are really an alternative means of “paying suppliers and partners in other countries, as well as for receiving remittances.”
According to a Chainalysis report, Nigeria is ranked 8 out of 154 countries in terms of crypto adoption and usage.
Meanwhile, in a move that seemingly contradicts its current stance on the foreign exchange parallel market, the CBN announced on November 30 that it is liberalizing the flow of cross border remittances. According to the new regulations, Nigerian recipients can now withdraw the remittances in USD, and they free to liquidate this anywhere including on the parallel market.
The CBN says the changes are necessary as they ensure “recipients of remittances would receive a market-reflective exchange rate for their inflows.”
Do you think the Naira currency is going to stop its current slide? Tell us what you think in the comments section below.
Image Credits: Shutterstock, Pixabay, Wiki Commons
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Author: Terence Zimwara