The Association of Bureaux De Change Operators of Nigeria (ABCON) has stated that panic buying is causing the crash of the Naira. This was disclosed by the President of ABCON, Alhaji Aminu Gwadabe to the News Agency of Nigeria (NAN).
Nairametrics recently reported that Nigerians who took a bet against the local currency by converting some of their Naira savings into dollars at the start of the year are currently reaping profit. On December 31, 2021, the parallel market’s closing exchange rate was around N565 to $1. The black market exchange rate has already dropped to a staggering N720 to $1 due to the Naira’s sharp decline in recent months.
Naira has been under immense pressure in the past two weeks, falling from an average of N618 to a dollar recorded two weeks ago. Bureau De Change operators told Nairametrics that lack of FX and a surge in demand were responsible for the Naira’s massive depreciation.
What ABCON is saying
The ABCON boss said the fall of the Naira is fueled majorly by the innate desire for self-preservation of some people and corporates who substitute a weaker currency for a stronger one.
He said that the paradigm has evolved to the current crescendo of panic buying of forex, most of which will end up under pillows and offshore.
He said that this phenomenon can’t be adjudicated by the authorities.
He said, “It’s typical consumer behaviour; Nigerians are sitting on an estimated 100 billion-dollar chest outside the country’s mainstream banking system. Today’s panic buying causes the currency to drop in value thereby inducing tomorrow’s panic buying which in turn results in further decline of the value of the currency and so forth”.
Gwadabe explained, “Panic buying is driven more by psychology and less by economic fundamentals, so the solution has to be psychological too”.
Gwadabe urged the CBN to abandon the official exchange rate and undertake a sustained injection of the dollar in the market to reverse the loss in the value of the Naira at the parallel market.
What you should know
- Information reaching Nairametrics suggests importers searching for dollars are able to match whatever price they are given hence fuelling some of the largest multi-single day depreciation of the Naira.
- Peter Obi, the presidential candidate of the Labour Party has urged the government and Nigerians to stop using foreign currencies like the US dollar for local transactions.
- It is important to note that the greatest Naira depreciation in history is being fueled by the CBN’s money supply growth rate. This is because the rate of inflation in an economy is one of the quantitative factors which impacts a currency’s exchange rates.
- In particular, if your economy’s inflation rate is low, you should anticipate drawing more foreign investment than comparable nations with greater inflation rates. On the other hand, if an economy has a high rate of inflation, the impact on the currency is like a double-edged sword.
As a solution to the depreciation of the Naira against the dollar I suggest from an economic point of view the following:-
1. There is much too much cash in circulation. The amount in circulation (I mean Naira) should be halfed over a period of three months. Three months strictly that is within one quarter.
2. This will in itself serve two purposes increase interest rate automatically. The increase in interest rate will on its own drive down inflation in fact drive us into a micro recession.
3. With the sharp reduction in cash available and the concurrent increase in interest rate the push for the dollar will reduce concurrently.
4. For this naira/dollar debacle to subside there must be a pseudo crash then the exchange rate will find its own 🧬 level because frevolous buying will be squeezed out. What goes up must come down.
Chris what u have said might be true but the average Nigerian does not care for these things. I think Nigeria should abandon all attempts to prop up the naira and simply float the rates. it will be effective long term. All the capital control measures by the CBN should be suspended as it further incentives investors to get as much as they can out of the naira.
Our politicians are busy buying dollars they will shared in election and also suspend small amount that for BDC,if nothing do naira will reach 1000 per 1dollar because demand is higher than supply in black market
I am not an economists and so I do not understand most of the technicalities behind this Baira/dollar debacle.This FX issue is affecting the common man and inflation rate on commodities is skyrocking. How can we help our local market to control price?