Nigerians are shorting the Naira

Latest concerning proceedings from Central Bank in Nigeria has it that the Governor of the CBN made a statement saying that people who take Naira from banks to buy Dollars will be arrested and prosecuted.

The continued declining state of the Naira against the USD has led people to begin shorting the Naira in traditional style by taking loans in Naira from banks to buy USD so that they can make profit in Naira when USD appreciates against the Naira.

Dollar has become not just a tool to hedge against inflation for Nigerians but also an appreciating asset. This time 2 years ago $1 was equal to 384Naira (official rate). Today it is at 415N.

Whereas, at the time of writing this post, on the black market, $1 = 640Naira with possibilities of the situation getting worse before the end of year as elections draw closer. Will $1=1000Naira by EOY? People are legit taking loans to bet on this.

Implication

Shorting the Naira in this style en masse further worsens the value of the Naira, it’s like going from frying pan to fire but rather than set up ways to bring the Naira back to life, the Governor is issuing threats to the citizens who are mostly bearing the brunt of inflation all round. Let everybody be mad.

All this leads to more inflation, also, because Nigeria imports more than half of what she consumes, looking at the information on imports below,

The top imports of Nigeria are Petroleum oils and oils from bituminous minerals, not crude; preparations n.e.c, containing... ($7.75B),
Motor cars and other motor vehicles; principally designed for the transport of... ($3.03B),
Wheat and meslin ($2.15B), Medicaments; (not goods of heading no. 3002, 3005 or 3006) consisting of... ($1.38B),
and Telephone sets, including telephones for cellular networks or for other wireless networks;... ($771M), importing mostly from China ($17.4B), Netherlands ($4.58B), United States ($4.49B), India ($3.46B), and Belgium ($1.99B).

In 2020, Nigeria was the world's biggest importer of Artificial filament tow ($188M), Embroidery; in the piece, in strips or in motifs ($143M), Flour, meal, powder, flakes, granules and pellets of potatoes ($102M), Matches;
other than pyrotechnic articles of heading no. 3604 ($16.3M), and Phosphides ($44k) Source

—for a country who is only best at exporting oil, prices of commodities that have already seen hikes in the past few months will only get worse over time. Many bakers have complained of shutting down their operations due to inability to make a good turn over after deducting operating costs.

The question now is “Is this the beginning of hyperinflation and we don’t know it?”. The CBN needs to device ways to stop people from taking loans to buy USD, but how? If banks don’t give loans, people wouldn’t save, if people don’t save, the banks will go out of operation.

Hence, if they can’t stop loans, then they can’t control what people buy with. Hence the only way to stop people from shorting the Naira is by saving the Naira and that my dear reader is gist for another day. E go tey. The mattér b like deadlock.

Meanwhile, in China…

Source

In China, a couple of banks are pulling a “Celcius” on its users. The banks were caught up in corrupt practices, got themselves insolvent and are confiscating owners money saying they’ve become bank property. Ofcourse people didn’t take it lightly and went to the banks to protest but were met with law enforcement who beat the protesters back.

Traditional banking systems are crumbling world wide and have become a shitshow, while the dollar is facing its own inflation troubles in international waters, people in Nigeria are hoarding it to hedge against inflation in their own economy. What an irony.

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Thanks for reading.

Kindly share your thoughts.

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