Nigerian Central Bank Incentive Scheme Failed to Halt Naira Depreciation – Bitcoin News

The Central Bank of Nigeria (CBN)’s attempt to incentivize the country’s forex market through the so-called “Naira for Dollar” scheme has failed. This is evidenced by the local currency’s plunge of more than 25% since the launch of the incentive scheme in March 2021.

Naira Depreciation

The CBN’s scheme that encourages recipients of cross-border remittances to cash out via formal channels failed to incentivize the forex market and has therefore not achieved the bank’s goal of halting the naira’s depreciation, a report has said.

According to one report in a local news site, Blueprint, since the launch of the Naira for Dollar scheme more than 13 months ago, the naira’s exchange rate versus the U.S. dollar fell by more than 25%. As of the writing date, the current naira/dollar exchange on parallel markets is at 612 naira every dollar. Official exchange rates have remained unchanged at 415 Naira per dollar.

Bitcoin.com News reported that the CBN initiated the incentive program more than one month after it instructed financial institutions to ban crypto entities from its banking system.

At the time, the CBN’s goal was to lure Nigerians in the diaspora who were reportedly sending remittances via alternative channels, which use the black market exchange rate. The CBN could increase foreign currency flows by directing cross-border money transfers to its official channels. To support the Nigerian pound, large reserves of foreign currency would also be available. The central bank’s economist stated that March was the successful month for the scheme.

Indirect Naira Devaluation

Some unidentified pundits, however, insist that the scheme can’t undo pricing anomalies that are caused by inconsistent policies. Many experts, organizations and others view the incentive plan as a devaluation for the Nigerian naira. Blueprint quotes Cowry Asset Management, who remarked on the possibility that the incentive scheme might have sent wrong signals to market participants.

“However, we feel that the CBN’s Naira for Dollar Scheme appears to be another form of Naira depreciation which may have sent the wrong signal to the forex market,” the asset management firm said.

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Terence Zimwara

Terence Zimwara was a Zimbabwe Award-winning journalist and writer. He is a prolific writer on the economic woes of African countries, as well as digital currencies that can be used to provide an escape path for Africans.