Nigeria's Currency Exchange Rate: A Self Inflicted Economic Sabotage ~ Ekokoi Solomon

Nigeria's Currency Exchange Rate: A Self Inflicted Economic Sabotage

Review

By Barr. Ekokoi Solomon

Few days ago, I saw a Facebook message, which was sent to my inbox by a Facebook friend in March 2020. Incidentally, I didn't see the message. Two days ago, this Facebook friend sent me another message and I had the opportunity of seeing the earlier messages, one of which asked: " Why do we have a parallel market in Nigeria?"

Obviously, the question relates to the parallel currency exchange rate system in Nigeria. I immediately responded by letting him know that it is a policy decision taken by the Nigerian government to benefit a few persons or section of the country. 

The determination of exchange rate and exchange of currencies are functions of the Central Bank of NigeriaIn (CBN) and commercial banks, respectively. Yet, even during the Buhari/Idiagbon military administration, when it was illegal to engage in the business of stacking and exchanging foreign currencies, those involved in the business were never prosecuted. In fact, begining in 1980s, this illegal activity took on a much bigger dimension at Broad Street, Lagos and Kano. And rather than arrest and prosecute persons involved in this illegal activity, the government legalised and officially recognized it as a legitimate business, and changed the name of the activity from "black market" to "parallel market". 

From then, Nigeria's woes in the currency exchange rate began, to the extent that a dollar and pound sterling in the black market was exchanged at almost twice the official rate in commercial banks. In some cases, it was as much as three times the official rate. So much so that in 1987, when banks offered N1.50 for a dollar, the black marketers exchanged a dollar for N4. As the banks realised that black marketers were flourishing in the business, they decided to raise the rate to bring it at par with the black market rate. By January 1994, a dollar was exchanged for N174. But in a bid to bring the exchange rate under control, the government decided to reduce the official rate to almost half the black market rate. But by this time, it was already too late. The train had left the station. When it became clear to the federal government that Nigerians involved in the black market business (both sellers and sellers) were undermining the country's monetary policy, the federal government decided to raise the official rate again, in an attempt to curb the corruption in the currency exchange system.

As the country continued to witness a decline in its foreign exchange earnings, as a result of over-dependence on crude oil proceeds, the black marketers took advantage by ensuring that its own rate remained above the official rate in the course of satisfying the demand for foreign currencies. The cycle has continued ever since because the powerful individuals who are feeding off the system have refused to end the so called parallel market system.

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