The Week in Business: Why is CBN Governor Cardoso Urging Nigerians to Reduce Demand for Dollars?
Nigerians’ unusual demand for dollars is putting pressure on the naira and the foreign exchange market, according to the Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso.
Cardoso called for the collective responsibility to protect the naira in a recent dialogue with the Senate Joint Committee on Banking and Insurance, saying the apex bank does not have a magic solution.
Most recently, the CBN directed that money transfers into and within the country can no longer be processed in US dollars and only in Naira. This recent policy forms part of the “tools” the CBN is employing to stabilize the exchange rate and curb inflation.
It is the CBN’s expectation that this move, among others, would reduce local demand for dollars and ease the pressure on the naira, which has been depreciating against the dollar due to the scarcity of foreign exchange.
On the flip side, Nigerians have criticised this move saying it would affect inflow of remittances from Nigerians in diaspora, which forms a major source of foreign exchange. Furthermore, many have argued that this could increase the cost of doing business in Nigeria since some transactions may require dollar payments.
On the global front, the Nigerian economy is affected by ongoing conflicts in Russia-Ukraine, disruptions from the Covid-19 pandemic, surge in energy prices, strengthening of the US dollar which has crashed commodity prices, international trade and foreign exchange reserves.
Cardoso’s plea is based on the rationale that Nigerians need to strike a balance between the supply and demand sides of the foreign exchange market.
As the naira continues to lose value against the dollar, many Nigerians are looking for ways to earn in foreign currency, hoping to gain from the exchange rate difference. In recent months, many Nigerians have turned to converting their naira savings to dollars as a way to evade the effect of the naira depreciation.
Despite the fact that Cardoso’s plea charts a link to the artificial scarcity of foreign exchange, it looks unlikely to be granted because it would mean a swift change in economic lifestyle.
For instance, it is unlikely that the Nigerians would stop leaving the country in pursuit of better education and livelihood elsewhere or would stop investing in import-dependent initiatives that are considered profitable locally.
Ultimately, Cardoso’s message is clear: If Nigerians do not moderate their need for foreign currency, we will harm the naira, ourselves and fellow Nigerians.
