Key Insights
- Nigeria’s national currency, the naira, has lost more than 70% of its value this year.
- Inflation in the country is expected to continue to rise sharply.
- More and more Nigerians are using cryptocurrencies and stablecoins like Tether and USD Coin.
Currencies in many emerging countries are facing massive problems. Even the fact that the US Dollar Index (DXY) is falling cannot stop the trend. The Nigerian naira is one of the fastest-depreciating currencies this year.
It is now down more than 70% against the US dollar. As can be seen in the chart below, the USD/NGN exchange rate has almost doubled over the past few months.
At the black market, MarketsXplora gathered that the dollar was exchanged at N945.00 and sold for N950.00 amidst high forex demands in the country.
Why the Nigerian naira is collapsing?
The Nigerian national currency is depreciating for a number of reasons. On the one hand, it follows the trend that can currently be observed in many emerging markets. A similar picture emerges for currencies such as the Turkish lira, South African rand, Kenyan shilling, and Argentine peso.
Second, the new Nigerian government has recently implemented many changes in the country. The largest of these occurred in the energy market, where the government ended a multi-billion dollar subsidy program.
While some analysts think the move was the right one, there are concerns about how it was carried out. Shortly after the program ended, petrol and diesel prices in Nigeria rose by more than 40%. This put a heavy strain on the already financially stricken residents.
The latest economic data showed that inflation in Nigeria rose to 22.7% in June. Nigerian economists expect it to reach 30% soon.
Third, the government’s decision to unpeg the Nigerian naira does not appear to be working. One of the goals was to prevent the gap between the official exchange rate and the black market rate. At first, the measure seemed to work, but now that gap has widened.
Are cryptocurrencies the solution?
Due to the ongoing crisis, Nigerians are forced to look for other solutions. One of the most viable strategies is for those with savings to convert them into foreign currencies like the US dollar and Swiss franc.
Read also: Nigerian Securities and Exchange Commission Warns Against Binance
The other option is to switch to stablecoins like Tether (USDT) , USD Coin (USDC) and soon PayPal’s new stablecoin PYUSD. The benefit of these digital currencies is that they are not subject to volatility compared to popular crypto tokens like Bitcoin (BTC) and Ethereum (ETH).
[…] August 14, the Nigerian naira fell against the dollar to its lowest level since March 2022. At the black market, MarketsXplora gathered that the dollar […]