Let’s talk about the forex rate now

Lately 1$ was equivalent to N650, honestly this is good if you’re earning in dollars but let’s flip the coin for those who aren’t.

Importers aren’t happy about this exchange because what they would have normally purchased with 400 they need to top with extra 250 naira, it might not look much for just one dollar, so let me paint a better scenario.

Let’s say you bought a product when the rate was 400 and it’s on its way back and you need to sell quickly and turn over so that you can order for a new container load, that means the cost is high, of course you might be tempted to sell at a high price so that you can meet up with the price of buying new stock at a high exchange rate, who bears the burden, yes consumers.

Let look at those who run adverts, facebook offers ads at dollars not naira, imagine how much it would cost a small and medium enterprise owner who wanted to try facebook ads to reach a larger audience.

What about a young student who has been held back by the ASUU strike and gets a scholarship to study abroad but needs to pay for certain fees in dollars, instead of paying lower, he or she is forced to pay a higher rate even to enjoy a scholarship.

And yet many Nigerians went to buy more dollars speculating that there would be an increase in December, you all contributed to the rise of the rate, I’ll explain.

A currency has more power when the demand for that currency is high, so one of the strongest currency in the world is the Kuwait Dinar. Its rate is 1KD= $3 (last time I checked) that the currency is stronger than dollar because they have something that they export in high commodities (oil) so you can only buy their oil with their currency, so to pay for their oil, you have no other choice to convert and demand their currency.

So when you convert your naira to dollars to get dollars, you make dollars appreciate, making naira lose value.

One of the ways to make a currency appreciate is by exporting commodities in high demand or reducing the demand of imported goods, so the Federal Government thought that banning foreign rice would help matters but Nigerian again increased the price of the rice that most of them smuggled into the country killing the idea behind the ban, because we were meant to focus on our locally produced rice but then no one is to be blamed for most of our locally produced rice isn’t at its best quality.

Another way to increase demand for the naira is by having enough tourist attraction centres so that foreigners can visit and convert their currencies into ours if they wanted to enjoy themselves but again, we don’t have so much of those and the ones we have are either not maintained properly or advertised properly and insecurity won’t let any one visit

Even Nigerians are scared to visit certain places in the country, how much more a foreigner, so that door was closed by us Nigerians not the government, although the government has a responsibility to protect its people not really foreigners.

Another way to improve the value of our currency is by increasing interest rates but this would have a counter effect on us because the in order to get capital for our dreams, we need affordable rates to get bank loans and pay back faster, there are so many things wrong with this but I’ll talk about infrastructures and government policies, when these two are in place, most businesses would flourish and pay back loans faster.

Imagine a hotel taking loans to facilitate its operations and then it spends more money on power (fuel, nepa bills, solar panels etc)

How then would it be able to pay back on time, most of these hotels have over 100 rooms, yea imagine.

The last would be demonetization, the act of stripping a currency unit of its status quo as a legal tender, going with this option would be catastrophic for us right now but we can go for a more cashless economy, John Obidi talked about how he spent a week in Rwanda and hardly saw their currency, this is good because the demand to hold cash is limited, whether it’s theirs or another country’s, they would rather prefer to use mobile money (a cashless means) so before they ask you for your dollar account, you’ll be asked for your mobile money account details, and sometimes when you have no other option you have to install a mobile money app too just so that you can have a seamless transaction.

Nigeria can imbibe something like this, but then most of our digital product creators charge in dollars and not in naira, which isn’t bad for wealth creation but not so good for our economy because it also increases the demand for dollars as well, especially for us Nigerians who don’t have it readily so we pay in the current exchange rate but to the American he or she is charging in his or her normal usual currency.

Again before digital product creators come for me, it isn’t bad but I just have to explain it in a way that we all can see how we contribute to the value depreciation of Naira.

Hope you learnt something new?

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