Over 40% of deposits in Nigerian banks are now in United States (US) dollars, according to a report by the International Monetary Fund (IMF).
The report shows that this increase in dollar savings reflects a loss of confidence in the local currency due to high and persistent inflation.
The use of US dollars for storing value in Nigeria has become increasingly popular, particularly for international trade and finance invoicing. However, the IMF warns that it may be difficult to reverse this trend.
Market participants in Nigeria defend their wealth by shifting to dollar savings under high inflation and exchange rate volatility. The process of reversing citizens’ savings in dollars could be complex even after addressing the initial trigger.
The IMF’s report suggests that the use of US dollars for storing value may continue to rise in Nigeria. This highlights the need for sustained efforts to address underlying economic issues and rebuild confidence in the local currency.
The Nigerian government and the Central Bank of Nigeria (CBN) will need to work together to create a more stable economic environment. This includes addressing the root causes of high inflation and exchange rate volatility, as well as implementing policies to encourage the use of the local currency for international trade and finance invoicing.
The implementation of the naira redesign policy and the issuance of new banknotes by the CBN have also contributed to the increasing use of US dollars for storing value in Nigerian banks. The policy introduced new 1,000, 500 and 200 naira denominations and withdrew the old notes from circulation.
The rise in dollar savings in Nigerian banks highlights the need for sustained efforts to rebuild confidence in the local currency and create a more stable economic environment. While reversing this trend may be difficult, it is essential for the long-term stability of the Nigerian economy.