Nigeria’s Naira slumps as more citizens flock to crypto as a hedge against a weakening fiat currency.
According to a bureau de change that tracks data in Lagos, the nation’s commercial hub, the country that operates multiple exchange rates has seen the naira drop to 670 per U.S. dollar.
The Nigerian Central Bank tightly regulates the official exchange rate, which dominates the others. The Nafex, an exporters and importers window regarded as the de facto market for foreign exchange in Nigeria, also sets an exchange rate between the naira and the dollar. The Nafex, which acts as a spot rate, was created in 2017 to encourage foreign investment inflows after Nigeria’s 2016 economic crisis. The naira-dollar exchange rate is 424.34 per dollar at 9:22 am local time on the spot market.
However, a black market rate hinging on the forces of supply and demand does exist, making it more salient in determining the naira’s actual value. Another rate has emerged, the crypto exchange rate, due to naira scarcity and two successive naira devaluations caused by the Covid-19 pandemic. A lack of confidence in the naira has turned many toward crypto.
Crypto exchange rate threaten naira
Despite the central bank banning banks from participating in cryptocurrency transactions in Feb. 2021, Nigerians have used peer-to-peer services like Paxful and LocalBitcoins to trade crypto using dollars. On Wednesday, July 27, 2022, 687.6 naira would buy a dollar on peer-to-peer platforms, according to data from Binance Holdings Ltd, suggesting that the naira could fall further in unauthorized markets.
In the 24 hours ending at 10:36 am on July 27, Nigerians had transacted $103691 in virtual currencies. In the first three months of 2022, they had racked up $185 million in bitcoin transactions, according to P2P exchange Paxful.
Dollar scarcity fueled a black market for the greenback in early July when 615 naira was exchanged for a dollar, creating a more than 30% spread with the rate set by the central bank. The dollar is the global reserve currency, meaning every central bank must hold reserves.
Nigeria’s central banks’ actions called ‘unconstitutional’
Nigeria’s central bank launched its state-backed digital currency, or CBDC, on Oct. 25, 2021, hoping to boost GDP by $29 billion in the following ten years. Slammed by a Nigerian journalist for its draconian measures, the central bank issued an internal memo advising bank employees to note potential red flags indicating crypto-related transactions and to close such accounts, which some called unconstitutional.
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