Nigeria Foreign Exchange Crisis: Worsening US Dollar Shortages Point to Further Devaluation
The ongoing shortages of hard currency are now forcing financial institutions to impose severe restrictions on the quantities that customers can withdraw for onward payment. As an example, one Nigeria bank, Ecobank is advising one customer of the new limits. The notice reads:
Chiagozie Iwu, the CEO of Naijacrypto, a locally established cryptocurrency exchange platform. He is in agreement that Nigerians are shifting to cryptocurrencies in a bid to avoid current restrictions. According to Iwu,”the exchange rate uneasiness has caused banks to limit foreign currency use. In turn, has made a lot of individuals switch to crypto for global remittances.”
Such restrictions are forcing some Nigerian companies to search for alternatives that are resistant to censorship. This is confirmed by several data sources that reveal Nigeria as one of the primary cryptocurrency markets in the world. Nigerians use cryptocurrencies to make online payments and for global remittances.
Released at Wed, 02 Sep 2020 10:04:52 +0000
Pressure on Nigeria’s current exchange rate is very likely to get worse in 2021, when the expected recovery of imports is set to induce another devaluation of the local currency to N430/another year, according to 2 Bank of America analysts.
Since the devaluation, the Naira has formally been trading at N380/$ and higher.
Iwu adds that fears of another devaluation will eat into savings, and this could have prompted an increased demand for dollar-based stable coins. Nigerian traders also use cryptocurrencies to pay Chinese vendors.
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“In the last two weeks on naijacrypto.com Naira into stablecoin conversion increased by over 500% in comparison to February when the Naira/USD was steady.”
Earlier rate adjustments, one in March and another in July, already seem to have failed to ease the pressure.
The analysts add,”Our baseline is for a 3.5% downturn, 13.2% inflation and current account deficit of 3.9% of GDP this year. CBN to remain on hold with a 6% deficit covered by foreign loans and domestic issuance.”
As Nigeria’s financial situation worsens, many still expect the large cryptocurrency market to grow even further.
In their predictions published in the regional media, both analysts, Rukayat Yusuf and Andrew MacFarlane are estimating”the Naira (NGN) fair value at 451/$, implying 15 percent overvaluation from current levels.”
What do you think of Nigeria’s foreign exchange crisis?
However, the Naira currency continues to lose ground on the parallel where the rates (at the time of going to press) vary between 455 and 465, based on Abokifx, an exchange platform that tracks parallel market exchange rates. At some point in August, the rate went over 480 before receding.
Meanwhile, the CEO shared Naijacrypto’s traded volumes which buttress the idea that exchange rate challenges are forcing Nigerians to cryptos.
In the meantime, the CBN had revised its Naira/Dollar prediction to 390/$1 by year-end from 430/$1 with foreign reserves at $28bn from $22bn.
Kindly be advised that the monthly POS/Web transaction for Naira debit card use overseas has been further review downward to $20 monthly. We sincerely regret all inconveniences this may have caused.