By Shomoye Abiodun
Recently, the professionals in the field of economics have done more to further confused already flummoxed Nigerians that have little or no idea of what currency appreciation and depreciation is. The free fall of naira is no news to averagely informed Nigerians, coupled with the free fall is the revelations of so many economic terminologies and topping the revelation are “official price” and ”parallel market price”. The facts that price of naira at the parallel market keeps entering nose dive at the fastest pace made its necessary for me to succinctly explain what parallel market is and why do we have parallel market.
What is parallel market?
A parallel market better known as black market refers to the illegal market that engages in foreign exchange business within countries (Similar to PMS Black marketers during fuel scarcity).
We can further comprehend what parallel market is if we look vividly at the operation of PMS Black marketers and the rationale behind their usual inflated prices. To cut the story short, PMS Black marketing shows up if and only if there is shortage of supply. Same principle apply to parallel marketing of currency, some of the factor supporting existence of parallel marketing includes:
Weak economic fundamental which includes a high rate of inflation and limited foreign reserve (one reason APC can’t stop the blame game).
Strict currency control that limits the amount of foreign currency available.
A fixed exchange rate regime where the domestic currency is pegged at an unrealistically high exchange rate to the U.S dollar.
A lack of confidence among citizenry in the value of domestic currency (this is why those keeping dollars in “soakaways” are killing us).
As a result of the aforementioned, demand for foreign currencies becomes the order of the day. The amaranthine proclivity for foreign currencies coupled with strict currency control measure will further necessitate the existence of parallel market. However, its importance may gradually erode as the economy becomes more open, foreign exchange reserves increase and confidence in the local currency returns.
The concept of currency appreciation and depreciation has no lacuna in its characteristic and therefore not a rocket science. Currency appreciation refers to an increase in the value of currency while current depreciation is its straight opposite; a loss or decline in value of a country’s currency with respect to one or more foreign alluded currency.
For a currency to either appreciate or depreciate is as simple as PMB, some of the factors that influence which direction the currency go includes:
Product price: if a country’s goods are cheap, foreigners will want to buy those goods, in order to transact, the producing nation’s currency is needed and this automatically increases the demand for the nation’s currency which has direct impact on the upload movement of the currency in terms of its value.
Inflation rate difference: suppose the price of “garri” increases by twenty five percent in Nigeria but remains stable in countries that engages in same “garri” production, Nigeria’s “garri” will become expensive to foreigners, even Nigerians will increase their purchase of cheap foreign “garri” hence depreciated value of Nigeria’s currency.
Other factors includes:
A very high export rate
Increment in employee’s income
High demand of the currency in foreign exchange market
From the little insight into the concept of currency appreciation and depreciation, factors playing key roles includes: product prices, inflation rate, high export rate, increment in foreign demand of naira. Trying to relate this to Nigeria’s scenario resulted to development of questions around how we all as citizens were silent for 16 years while the PDP led government were seriously lavishing our resources.
After 16years of PDP, what is Nigeria as a nation exporting other than the crude oil PDP inherited?
Why is our country not suitable for foreign companies to erect a branch?
What do we produce other than oil whose price can be reduced to pose competition to other producing countries?
Why will foreigners demand for our Naira to aide its strongest?
Which alternative source of income did PDP leave behind?
Now we wants the economy to be diversified with crude oil at 29 dollars per barrel, we want the power to be stable when our source of income is at 29 dollars per barrel, we wants good road, we wants jobs, and we wants security. All these on an APC government that could be said to have assumed power at the toughest period. Truth be told APC led government are already pushed to the wall by the enormous expectations from the masses and hence they can’t and won’t stop blaming a government that enjoyed the dollar at 80-120 dollars per barrel with nothing tangible to show for it. Am talking of an administration that could not diversify economy when dollar was a hit, an administration that never saw security as important until February when the exodus becomes glaring, a government that turned election into money sharing ceremony.
Yes there are things this government can do to take us away from this aesthetic mess we found ourselves but there is no step they will take without meeting one obstacle or the order created by the past government hence the blame game. I will implore all Nigerians to develop likeness for the series of blame lyrics but at the same time question the government for the dividends of democracy. Thanks for reading
Note: The writer’s perspective are only coming from his fare perception of occurrences in the country and the factors behind them. The writer has No affiliation or loyalty with the current ruling party.
Shomoye Abiodun can be contacted on Twitter via @MrShomoye
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