Central Bank of Nigeria (CBN) governor Godwin Emefiele says embracing the parallel market exchange rate from some professionals in that country is unfair and unfortunate. The CBN governor says the parallel foreign exchange market only accounts for a market share of no more than 5%. He also added that this market is popular with corrupt individuals because it enables them to facilitate their illegal activities.
Corrupt Market Corrupted
Emefiele’s comments were prompted by reports in late November that Naira’s local currency plummeted to 1: 480 against the US dollar. This is in contrast to 1: 380 which the CBN says is the real rate.
In comments made during CBN’s monetary policy committee (MPC) committee briefing on November 24, Emefiele refuses to use what he calls a “corrupt market” to determine the exchange rate of the national currency. Describing the foreign exchange collateral market Emefiele states:
It’s a corrupt market where people who want to deal in illegal foreign exchange transactions including access to FX cash purposes of offering bribes, corruption … that’s where they deal.
Throughout the short speech, Emefiele reiterates the belief that Nigerian analysts embrace the use of the black market exchange rate for formal business transactions. In mourning for the apparent embrace and widespread use of the market collateral exchange rate, Emefiele reiterates that it is unfortunate that “those who are supposed to know (are) trying to fold numbers in this country.”
Oil-rich Nigeria faces a significant shortage of foreign exchange as pandemic-related restrictions have hemorrhaged the federal government’s revenue-generating capacity. As a result, the CBN has been implementing measures that restrict 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 US dollars that only Nigerian residents can withdraw.
Pivot to Crypto
However, the curbs on foreign exchange access have inadvertently pushed businesses and individuals toward cryptocurrencies. Using local cryptocurrency exchanges that enable the transition from Naira to crypto and vice versa, small business owners have managed to stay active during the lockout.
Others are now using cryptocurrencies as a payment method when buying online. Also, as News.bitcoin.com previously reported, some Nigerian expatriates are now sending payments using crypto platforms as they try to avoid CBN’s “fixed” exchange rate of 380 naira per dollar. Using cryptocurrencies.
Meanwhile, Uzo Awili, the CTO with the Quidax crypto exchange, agrees that an increase in 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 exchange in Africa, Awili says:
Over the past few months, we have seen an increasing number of businesses and individuals using cryptocurrencies to send and receive money from around the world faster and cheaper than ever before. Many of these businesses and individuals used cryptocurrency for the first time this year and continue to use it after that.
Nathaniel Luz, who represents Dash in Nigeria, explains that the country’s shortage of foreign currencies has shown Nigerians that cryptocurrencies are in fact an alternative means of “paying suppliers and partners in other countries, as well as receiving payments.”
According to a Chainalysis report, Nigeria is ranked 8th out of 154 countries in crypto adoption and deployment.
The Contradiction
Meanwhile, in a move that seems to contradict its current stance on the foreign exchange collateral market, the CBN announced on November 30 that it was liberalizing cross-border payment flows. According to the new regulations, Nigerian recipients can now withdraw the payments in USD, and are free to revoke this anywhere including on the parallel market.
The CBN says the changes are necessary because they ensure that “payment recipients would receive an exchange rate that reflects the market for their inflows.”
Do you think Naira’s currency is going to stop its current slide? Tell us what you think in the comments section below.
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