Nigerians Shun Local Currency— Seek to Protect Wealth From Inflation and Currency Depreciation with Foreign Currency – Economics Bitcoin News

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:

How To Get Free Crypto  

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.”

Coinbase Banner  

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

Tags in this story

Image Credits: Shutterstock, Pixabay, Wiki Commons

Go to Source
Author: Terence Zimwara

Recommended Crypto Services, Products and Strategies:

The first thing any crypto investor needs is is a reliable and secure Crypto Wallet.  Whether you’re looking for an online wallet, hardware wallet, desktop or mobile wallet, Crypto Renegade provides you with all the Best Crypto Wallets in each category.

Best Crypto Wallets Banner

When you’re ready to buy more crypto, or exchange your coins for others, Crypto Renegade’s list of the Best Crypto Exchanges has you covered.  The Crypto Exchanges recommended here offer everything from simplicity and convenience to advanced trading platforms and profit sharing. 

Best Crypto Exchanges Banner

If you want to learn more about the methods and tools that can be used to find Great Crypto Projects, then be sure to check out Crypto Renegade’s strategy for How To Find The Best Cryptocurrency.

Crypto Strategy Banner

For those people that don’t have any money to invest right now, or just want to understand the technology a bit more, you’ll definitely want to check out Crypto Renegade’s Free Crypto Strategy and start collecting Free Coins today!

Free Crypto Banner

What do you think about cryptocurrency? Do you have any questions about it? Be sure to leave a comment below.

This site uses Akismet to reduce spam. Learn how your comment data is processed.