Why the Dollar Continues to Crush the Naira 

The devaluation of the Naira against the US dollar was ascribed to unrecorded diaspora remittances by the Central Bank of Nigeria (CBN) on Thursday. Folashodun Shonubi, the acting governor of the apex bank, made this declaration during a lecture titled “Diaspora Remittances and Nigeria’s Economic Advancement,” which he presented to participants of the Executive Intelligence Management Course (EIMC) 16 at the National Institute for Security Studies in Abuja.

According to report, the Naira reached an all-time low of N925/$1 on the parallel market on Wednesday, with demand for the dollar surpassing its supply. This situation follows the liberalization of the foreign exchange system, marking a significant shift from the policies of the previous administration under President Muhammadu Buhari. 

However, Shonubi clarified that a considerable portion of diaspora remittances arrived in Nigeria in the form of dollars, and these transactions often went unrecorded officially, leading them to flow into the unofficial or parallel markets.

Questions about the destination of funds within the financial system

The statements above reflect the perspective articulated by Shonubi on the matter. According to him, it is apparent that despite the inflow of the US dollar into the country through remittances, their presence remains unaccounted for within the official financial system. This situation raises questions about the ultimate destination of these funds.

He also highlighted the challenges associated with the unregulated black market, often referred to as the unofficial or parallel market. The absence of regulatory oversight in this market makes it susceptible to various illicit activities.

Furthermore, it was emphasized that investigative efforts extend beyond the banking sector and encompass individuals involved in any form of wrongdoing. In many cases, those engaging in unlawful activities seek refuge in the black market, where they convert their assets into dollars for the convenience of carrying smaller sums of cash.

Interestingly, Shinubu noted that a portion of the capital circulating within these black markets originates from diaspora remittances. This underscores the importance of gaining a comprehensive understanding of these markets rather than relying solely on sentiment or outdated literature that may not align with the current circumstances.

The importance of remittances in a country

Shonubi pointed out that numerous countries rely heavily on remittances as a primary source of income, citing examples where some nations earn approximately 1.5 million dollars through remittances. This phenomenon is not limited to less developed countries but is also observed in well-developed nations like India and China.

In his perspective, it would be advantageous for the country to establish measures aimed at regulating illicit remittances and identifying the channels through which they operate. This proactive approach can help ensure that remittances flow through legitimate channels, maximizing their potential to contribute to economic growth.

Furthermore, he highlighted that in 2021, the country witnessed a surge in diaspora remittances, surpassing the revenue generated from the construction industry. This trend suggests that many Nigerians living abroad may not be inclined to return home voluntarily, emphasizing the importance of addressing this dynamic

He emphasizes the need for improved methods to transfer funds to Sub-Saharan Africa, as the current banking system is costly and inefficient due to low usage. It advocates for joint efforts to streamline these financial channels for the betterment of the economy. 

He also points out the challenges posed by black markets, which complicate foreign exchange management and policy implementation. It further notes that incomplete information can distort the naira and the dollar rate in the market, as exemplified by last-minute transactions that set misleading closing rates.