Dollar deposit by Nigerians in banks has exceeded the 30 per cent threshold approved by International Monetary Fund (IMF), a Central Bank of Nigeria (CBN) report has said.
The report by CBN economists said Nigerians have been accumulating foreign currencies to protect their wealth from naira volatility and surging inflation.
“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 spate of currency substitution in the country.
The CBN economists, including Isaiah Ajibola, Sylvanus Udoette, Rabia Muhammad and John Anigwe, said Nigerians deposit in dollars hit peak of 98.2 per cent in 2015 before declining to 83 per cent in 2018.
They explained that a broader measure of foreign currency in banks to naira savings, demand and term deposits, stayed largely within the IMF limit over the story period from 1995 to 2018.
The CBN devalued the local unit twice last year after a crash in the oil price triggered 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/$.”
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.