Against the backdrop of falling Naira, Nigerians are now massively hedging against the local currency by amassing dollar-denominated digital assets, in particular stablecoins and bitcoins.
There are several different exchange rates in Nigeria, one of which is the official rate, which is closely regulated by the Central Bank of Nigeria (CBN). There is also an unofficial parallel market (black market), where prices are more fairly reflective of the value of the naira because they are mostly based on supply and demand, but are highly manipulative due to low trading volumes and its opaque nature.
The naira has been falling to new lows in the parallel market since July due to scarcity of dollar as the central bank works to encourage trade through authorized exchange channels.
Nigerians traded over $5 million worth of Bitcoin were traded by Nigerians on the popular P2P trading website Paxful, and LocalBitcoins saw a 258% increase from last week’s data, recent data has shown.
Many Nigerians nonetheless exchange the digital currency in the peer-to-peer market where transactions are priced in dollars, despite the fact that banks are forbidden by the central bank from aiding cryptocurrency transactions.
In addition, information gathered from foreign exchange dealers in various areas of Lagos, the country’s commercial center, revealed that the Naira was exchanged for the dollar on Wednesday at a rate above N710 to the dollar, while the hard currency was purchased from holders at a rate between N695 and N700 to the dollar.
According to a Nairametrics report, the Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele’s recent comments at the recently concluded MPC meeting, is also to blame for the fall of the Naira in the parallel market. His comments have led to an increasing number of Nigerians panicking and selling their Naira investments for dollars.