Nigerian Central Bank Incentive Program Fails to Stop Naira’s Devaluation – Bitcoin News

An attempt by the Central Bank of Nigeria (CBN) to incentivize the country’s foreign exchange market through a so-called “naira-for-dollar” scheme has failed. This is evidenced by the more than 25% plunge in the local currency since the launch of the incentive program in March 2021.

Devaluation of the Naira

CBN’s plan to encourage recipients of cross-border remittances to cash out through formal channels has failed to incentivize the foreign exchange market, thus failing to achieve the bank’s goal of preventing the devaluation of the naira, a report said.

According to a report by local news site Blueprint, the naira has fallen more than 25 percent against the dollar since the launch of the naira-to-dollar program more than 13 months ago. At the time of writing, the naira-to-dollar exchange rate on the parallel market is 612 naira per dollar. The official exchange rate remains at 415 naira to the dollar.

As previously reported by Bitcoin.com News, CBN launched the incentive program more than a month after instructing financial institutions to prevent crypto entities from entering the banking ecosystem.

At the time, the CBN was aimed at attracting Nigerians in the diaspora, who reportedly sent money through alternative channels using black market exchange rates. By directing cross-border remittances to official channels, CBN will be able to increase the amount of foreign currency flowing into its coffers. In turn, a large amount of foreign exchange reserves will be used to support the naira. In March, an economist at the central bank announced that the program had achieved its goals and thus was a success.

Indirect naira depreciation

Still, some unnamed pundits cited in the report insist that the plan alone cannot eliminate pricing anomalies caused by policy inconsistencies. Some experts and organisations even see the incentive scheme as a form of devaluation of the naira. For example, the blueprint cites comments from Cowry Asset Management about how the plan could send the wrong signal to the market.

“However, we think CBN’s naira-to-dollar scheme appears to be another form of naira devaluation that may have sent the wrong signal to the foreign exchange market,” the asset manager said.

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