- The Nigerian naira has plunged by over 70% this year.
- Inflation in the country is expected to continue soaring.
- Nigerians would do better to invest in stablecoins like Tether and USD Coin.
Emerging market currencies are in trouble even as the US dollar index (DXY) retreats. The Nigerian naira has become one of the worst-performing currencies this year, having collapsed by more than 70% against the US dollar. As shown below, the USD/NGN rate has soared to 760. The black market rate is approaching 1,000.
The Nigerian naira has dropped for several reasons. First, the collapse of the Nigerian naira is in line with the decline of other currencies like the Turkish lira, South African rand, Kenyan shilling, and the Argentinian peso.
Second, the new Nigerian administration has moved with speed to implement changes in the country. The biggest change was in the energy market, where the government ended a subsidy program that cost it billions of dollars per year.
While analysts believe that the move was the right one, there are concerns about how it was done. Shortly after that, petrol and diesel prices in Nigeria have jumped by more than 40%, burdening already cash-strapped residents. The most recent data showed that inflation jumped to 22.7% in June and analysts believe it will hit 30%.
Third, it seems like the decision by the government to end the Nigerian naira peg is not working. One of the goals was to prevent the spread between the official rate and the black market rate. After the gap narrowed, the spread has widened once again.
Therefore, in this case, Nigerians have a few viable options. One of the most viable strategies is for those with savings to convert them into foreign currencies like the US dollar and the Swiss franc.
The other option is to move to stablecoins like Tether, USD Coin, or the newly launched PYUSD. The benefit of these stablecoins is that they are more stable compared to popular cryptocurrencies like BTC and ETH.
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