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I saw a debate on Instagram a few days ago where the participants were divided into two groups, one group for and the other against the notion of “Should You Still Save In Dollars As A Nigerian In 2023?”
It inspired this post and I’m going to unpack my thoughts on the subject, so here goes…
WHY SAVE IN A FOREIGN CURRENCY?
The reason why saving in a stronger currency is advisable for a Nigerian is deeper than just making profit or losing your money over time, the biggest reason is “SECURITY”
Nigeria is largely an import-dependent nation, that is not changing anytime soon, which means you are indirectly buying in dollars 50 to 70% of the time when you spend your Naira here in Nigeria, whether or not you know it.
Let’s take cars for instance, at least we know that a good percentage of cars in Nigeria were imported and paid for in Fx like dollars or pounds by the car dealers, when those cars come into Nigeria, the sellers will convert what they paid for it in Fx to Naira and add their taxes, shop rent, and profit on top, so you pay indirectly the dollar equivalent and more.
Therefore if you save in dollars, for instance, your saving is secure whether the Naira goes up or down.
Let me explain with an example:
If you and I want to buy a car and it is N500,000 (or $1000) in Nigeria when Fx is N500 to $1,
You save N500,000
And I save $1000 (converting my N500k to $1,000)
At this time your N500k and my $1,000 are exactly the same
– If in 2 months Fx becomes N400 to a dollar, the price of the car falls to 400k, you can still buy the car and have N100,000 change (sweet)
– but if Fx goes to N600 to a dollar, you can’t buy the car anymore because it becomes N600,000 and you have only N500,000 saved (Your 500k cannot change)
Now for me who saved in USD…
– If in 2 months Fx becomes N400 to a dollar, yes my $1,000 drops from 500k to 400k, it may seem like I lost 100k, but I can still afford the car coz it’s now N400k as well
– And then (THE MOST IMPORTANT PART)…
– If Fx becomes N600 to a dollar, I can still afford the car coz my $1,000 can be exchanged at N600,000 now which equals the new price of the car. I don’t have to save any extra money. Even if it becomes N1,000 to a dollar, while you’ll be scrambling to save an additional N500,000 to be able to afford the car, I don’t have to coz my $1000 is now equal to N1million
WHY MOST PEOPLE THINK SAVING IN DOLLARS IS A BAD IDEA IN 2023
Nigeria has just ushered in a new President “Bola Tinubu”, and this new administration seems to be focused on new economic policies such as the removal of subsidies and devaluation of the Naira.
I am not going to go into details about the economic consequences of these policies so as not to bore you to death, but here’s the important thing you need to know.
SUBSIDY
Subsidy removal means life will become %100 more difficult for the average Nigerian, coz the government will stop paying part of the fuel price, dumping all of the responsibility on the masses without any prior systems to make the transition bearable and easier to manage. The timing of it all may just be the final straw that breaks the camel’s back for our already ailing economy.
DEVALUATION
Devaluation in economics refers to the deliberate downward adjustment of the value of a country’s currency relative to other currencies. It is typically implemented by a government or central bank and is aimed at achieving various economic objectives, it can have both negative and positive outcomes based on a number of factors.
One of the main aims of devaluation is to reduce the cost of a country’s exports, rendering them more competitive in the global market, which, in turn, increases the cost of imports. If imports are more expensive, domestic consumers are less likely to purchase them, further strengthening domestic businesses.
It sounds good on paper, but again, for a country like Nigeria that is still heavily dependent on importation as I’ve early stated, and don’t have good homegrown alternatives to many products (cars being one good example as we saw above), the new government is making a move to devalue the currency without putting in countermeasures to boost our production so we can rely on our own produce.
What may likely happen is that we are stuck with a higher cost of imports and therefore increased inflation which is already shooting through the roof before the devaluation.
WITH SAVING IN DOLLAR YOU HAVE CONTROL
While some may argue that saving in dollars is risky because they could lose money if all of these new policies actually work and make the Naira stronger compared to dollars, well, you have the advantage of observing the trends and making a decision to convert back your savings to Naira before you lose too much, but if you only save in Naira, you are stuck and have no control, the government and the economy of the country detects the value of the currency you have and there’s nothing you can do about it.
IN CONCLUSION
The goal of saving in Fx is more about “Security” and not profit, for you to be able to afford things whether the currency goes up or down.
The only time it will not make sense to save in dollars is if Nigeria stops being so heavily reliant on importation.
Now, I’m not saying “SAVE ALL YOUR MONEY IN DOLLARS”
The idea is to save in both currencies so you can have some leverage, no matter where the economy goes.
PS: If you earn in any foreign currency already, you have an even greater advantage coz you don’t have to source for Fx, covert a chunk of your money to Naira, and leave some in USD, Euro, or Pounds as Security (Not for profit)
I hope this blog post is neither boring nor misunderstood.
Cheers!
