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Could dollarization of the economy be a threat to monetary stability?

The scramble for the US dollars in Nigeria has set off alarm bells about the possibility of Nigeria adopting a bi-monetary system, where the dollar and local currency are legal tender. While dollarization has its perks, particularly in luring foreign investments, it also comes with gnarly risks like the loss of monetary policy autonomy, making it harder to manage inflation and respond to economic shocks. Unfortunately, one unintended consequence of spiralling inflation, unchecked by monetary policy authorities is declining investor confidence.

The flame still burns but hope is not lost!

According to the World Health Organization (WHO), “Nothing is more people-centred than relieving their suffering…”

In the heat of the challenges (including the staggering petrol price at ₦617/litre and the free fall of the naira) faced by Nigerians, the president has unveiled a cocktail of social safety nets for the average Nigerian. Complementing the initial ₦500bn palliative package, the FG recently granted approval for an additional ₦180bn to be distributed among the 36 states and the Federal Capital Territory (FCT).

Palliatives + policies = temporary relief

The NNPCL secured a $3 billion emergency crude repayment loan to shore up the reserves and aid the CBN’s efforts to defend the naira. In response, the naira at the parallel market appreciated for three consecutive days, closing at ₦855/$ today from a low of ₦955/$, while the official rate is stable at ₦799/$. The sustained appreciation of the naira at the parallel market will likely reduce import costs, potentially alleviating the pressure on prices. Supporting this temporary relief for Nigerians will be the expected uptick in oil receipts as the Forcados terminal resumes exports.

In this maiden edition of the FDC Whispers, the Think Tank provides a detailed analysis of recent economic events and their far-reaching implications on households and businesses.

Enjoy your read!