Exchange Of Dollar To Naira In Black Market
The exchange rate of dollar to naira in Nigeria has been a topic of concern for many years. The official exchange rate set by the government is often different from the black market exchange rate. While the official exchange rate is regulated by the Central Bank of Nigeria (CBN), the black market exchange rate is determined by market forces. This article will discuss the exchange of dollar to naira in the black market and how it affects the Nigerian economy.
What is the black market exchange rate?
The black market exchange rate is the exchange rate at which currencies are traded in the informal market. It is also known as the parallel market or the street market. This market is not regulated by the government, and the exchange rate is determined by supply and demand. The black market exchange rate is usually higher than the official exchange rate.
Why is the black market exchange rate higher?
The black market exchange rate is higher because of the high demand for foreign currencies. Many Nigerians prefer to hold their savings in dollars, especially during periods of economic uncertainty. Also, many businesses require foreign currencies to import goods and services. The limited supply of foreign currencies, coupled with the high demand, leads to an increase in the black market exchange rate.
How does the black market exchange rate affect the Nigerian economy?
The black market exchange rate has a significant impact on the Nigerian economy. Firstly, it leads to inflation. As the black market exchange rate increases, the cost of imported goods and services also increases. This, in turn, leads to an increase in the general price level of goods and services, leading to inflation.
Secondly, the black market exchange rate affects the balance of payments. When the black market exchange rate is higher than the official exchange rate, it creates an incentive for people to smuggle foreign currencies out of the country. This results in a decrease in the supply of foreign currencies, leading to a balance of payment deficit.
Why is the official exchange rate different from the black market exchange rate?
The official exchange rate is different from the black market exchange rate because the CBN regulates the official exchange rate. The CBN controls the supply of foreign currencies in the official market, and it uses its foreign reserves to stabilize the exchange rate. The CBN also sets the exchange rate for some transactions, such as international trade and remittances.
However, the black market exchange rate is not regulated by the CBN, and it is determined by market forces. The black market exchange rate is usually higher because of the high demand for foreign currencies and the limited supply.
Conclusion
The exchange of dollars to naira in the black market has a significant impact on the Nigerian economy. The black market exchange rate is usually higher than the official exchange rate, and it creates inflation and a balance of payment deficit. The CBN regulates the official exchange rate, but it cannot control the black market exchange rate. It is essential for the government to address the factors that lead to the high demand for foreign currencies and the limited supply to stabilize the exchange rate and promote economic growth.