Nigerians now holding dollars as investment option, discard naira to make profit

Nigerians are reportedly shunning the country’s currency, naira, for foreign notes.
This move is to escape the weak local currency which has a high volatility amid rising inflation rate.

In the past four years, the naira has weakened to dollar demand, depreciating from N305/$1 value as at the end of December 31, 2016, to N410 per dollar as at April 23, 2021, at the investors and exporters window.

This means if an individual held on to $100 in the last four years, the person would have gained over N10,000, as the naira value to a dollar rose from N30,500 in 2016 to N41,000 in April 2021.

This represents an investment profit of 34.4 percent in the course of the four years. So holding on to the dollar has become more profitable considering the Central Bank of Nigeria made saving in deposit money banks less attractive.

Read also: Naira gains N1, exchanges at N485/$1

The CBN policy was done to force individuals to invest their money in the economy and ensure high liquidity in the Nigerian market. This policy seems to be pushing more Nigerians into choosing dollar as a store of value.

According to economists of the central bank, Isaiah Ajibola, Sylvanus Udoette, Rabia Muhammad and John Anigwe, “Higher real-exchange rate volatility is associated with an increased level of currency substitution,” Bloomberg quoted them on Wednesday.

They added that the country must contain “exchange-rate volatility and inflation as a way of curbing the spate of currency substitution in the country.”

They further stated that, “The key policy implication of currency substitution is that it reduces monetary policy effectiveness,” and “Efforts to further diversify the economy should be of paramount interest to boost the base for foreign-exchange earnings.”

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