The Central Bank of Nigeria in a report said that Nigerians has exceeded the 30% threshold of dollar deposits approved by International Monetary Fund (IMF).
The report by economists of the CBN explained that Nigerians have been accumulating foreign currencies to protect their wealth from surging inflation and naria volatility.
“Higher real-exchange rate volatility is associated with an increased level of currency substitution,” they said in the report.
According to them, there is a need to contain exchange rate volatility and inflation as a way of curbing the increase in currency substitution in the country.
Recall that CBN devalued the local unit twice in 2020 after a purported crash in the oil price inflated by the coronavirus pandemic hampered revenues.
The report said: “While crude contributes less than 10 per cent to the country’s gross domestic product, it accounts for nearly all foreign-exchange earnings and half of government revenue in the continent’s biggest producer of the commodity. The naira has lost 66 per cent of its value since 2009 when it exchanged at N149/$.”
A report from The NATION shows that “The unit was little-changed at N409.21 per dollar at the spot market yesterday. Nigeria’s inflation quickened to the highest level in four years in March and is now more than double the nine per cent limit of the central bank’s target range.”
“The CBN previously issued a warning to merchants to stop offering local goods in foreign currency and also banned the practice of accessing the foreign-exchange market for settling domestic transactions.”
“The key policy implication of currency substitution is that it reduces monetary policy effectiveness.” the researchers said.