The Nigerian Naira Continues to Plummet Against the US Dollar
The Nigerian naira (NGN) has been on a steady decline against the United States dollar (USD) for several months now, reaching a new record low. Despite efforts by the country’s central bank to address the issue, the currency continues to weaken due to foreign-currency shortages.
NGN/USD Analysis
The Nigerian naira’s price in USD fell to $0.000632 on February 28 and has continued to decline further. As of now, it stands at around $0.000573. This represents a decline of 1.72% on the week, 47.04% on its monthly chart, and an accumulated loss of 46.55% in the last 12 months.
Inflation Continues to Rise
Despite interventions by the central bank, including dollar sales of $100 million in a single week, Nigeria is still facing one of its worst economic crises in years. Inflation has reached nearly a 30-year high of 29.9%, making the naira the third-worst performing currency among 150 tracked by Bloomberg.
This situation has not only impacted Nigeria but also global corporations like London-based lender Standard Chartered, which has suffered significant losses.
Government Policies Fail
The challenging situation in Nigeria can be attributed partially to government policies that limited access to the dollar for importers of certain items. This was done in an attempt to stabilize the economy following a drop in crude oil prices in 2014, which is Nigeria’s largest foreign exchange earner.
However, these policies led to rampant theft and pipeline vandalism, resulting in a decrease in crude oil sales and further destabilization of the naira. It also created a parallel black market for the dollar, where the currency was traded at a much lower rate.
The devaluation of the naira has also given rise to cryptocurrency platforms in Nigeria, leading to a government crackdown on these websites. Recently, two senior executives at crypto trading platform Binance were detained, and the exchange halted trading of the naira against Bitcoin (BTC) and Tether (USDT).
Hot Take: The Nigerian Naira’s Downward Spiral
The Nigerian naira’s continuous decline against the US dollar is a cause for concern. Despite efforts by the central bank and government policies, the currency has reached record lows and inflation continues to rise. This not only affects Nigeria’s economy but also has implications for global corporations.
Moreover, the crackdown on cryptocurrency platforms shows the government’s attempt to regain control over the financial system. However, this may hinder innovation and economic growth in the long run.
It remains to be seen how Nigeria will address these challenges and stabilize its currency. In the meantime, individuals and businesses operating in Nigeria should closely monitor the situation and consider diversifying their holdings to mitigate potential risks.
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