- The Nigerian naira and Turkish lira have plunged in the past few months.
- The NGN has plunged from about 380 in 2018 to over 600.
- Some analysts believe that Bitcoin, Tether, and Pi Coin are better alternatives.
Emerging market currencies tend to be extremely volatile. For example, the Turkish lira has crashed from about $4 in 2018 to about $19. This means that Turks have seen the value of their lira-dominated assets drop by over 360%. Turkish inflation stands at more than 60%.The
Nigerian naira is another currency that has plunged. The official NGN/USD rate has soared to 460 from 2018’s low of 352. The unofficial rate stands at over 600. The unofficial rate is important because it is what Nigerians are getting in the marketplace.
Nigeria and Turkey are not the only ones to see their national currencies lose their value. The closely watched MSCI Emerging Market Currency index has plunged by over 10% in the past 12 months. Most currencies in the index like the South African rand and Brazilian real have contributed to the collapse.
Why is the Nigerian naira crashing
Emerging market currencies crash for numerous reasons. For Turkey, the lira crash has been artificially caused by the Central Bank of the Republic of Turkey (CBRT). In the past 15 months, the CBRT has slashed interest rates from about 20% to 9% even as inflation surged. The bank did this because it lacks the independence that other global banks like the Federal Reserve have.
The Nigerian naira collapse has also been caused by the central bank, which started phasing out older notes. This transition from older bank notes led to a severe currency shortage such that people were lining in banks and ATMs for hours.
The Nigerian naira scarcity, coupled with the ongoing fear of this week’s election, have pushed the currency lower. In most periods, emerging market currencies tend to crash ahead of an election because of the elevated risk of violence and instability.
The naira has also collapsed because of the ongoing fuel crisis in the country. This is a sad situation because Nigeria is the biggest oil exporter in the country. But it is also a big importer since it has no major refining capabilities. As such, the difference between exports and imports is usually negligible.
Worse, Nigeria has some of the most generous fuel subsidies in the world. The IMF and other experts have always warned that these subsidies are unsustainable. Therefore, the country’s budget deficit has continued rising.
Are Bitcoin, Tether, and Pi Coin good alternatives to naira?
Many crypto enthusiasts believe that cryptocurrencies can become good alternatives for the Nigerian naira. Besides, Bitcoin, unlike the lira has limited supply and is not controlled by a central bank. Further, data shows that Nigeria has some of the most active crypto investors in Africa.
Other analysts believe that Tether and Pi Coin are better alternatives. They point to the fact that Bitcoin is more volatile than the Nigerian naira. Its value has crashed from near $70,000 to about $24,000 today. Tether, on the other hand, is a stablecoin that is backed by the US dollar.
Read more: How to buy Tether.
To a large extent, Nigerians can benefit by holding Tether and even the fiat US dollar directly. Since the Nigerian naira has always crashed, holding a foreign currency like the USD or tether can help them stay safe.
However, the main challenge of Bitcoin and Tether is the lack of trust among Nigerians. It has been widely reported that many Nigerians lost money when FTX crashed. As such, convincing a critical mass of people to use digital coins they don’t understand will always be difficult.
Therefore, while many young Nigerians continue to hold crypto, I think that the biggest winner is the US dollar. For one, Nigerians who held $1,000 in 2018 have seen their value rise to about 460k. In 2018, the same amount was about 360k.
