Hello Hivers,
I wish to share my ideas about how the black market is thriving especially in Nigeria.
The Naira has suffered serious decline in the foreign exchange market overtime and this is as a result of the actions and inactions of the government in Nigeria.
The Nigerian banks have done two things, one of which is to restrict the supply of foreign exchange, and secondly they have quoted unfavorable prices which does not tally with the reality on ground.
I will explain this using a simple analogy.
Let's say a bottle of water is sold at 50 naira per one.
Then the govt in a bid to regulate price insists that a bottle of water be sold at 25 naira.
This is a challenge because producers would not be able make profits hence they stop production.
Then supply of water at 25 naira vanishes from the market but demand very much remains strong.
As a result a new supply of water will spring up but this time the price is 100 naira.
Wait, 100 naira?? Why not 50naira???馃ズ
Well supply of a bottle of water has been cut short for a while and hence demand has outgrown supply.
Now you see why price skyrockets馃槑. The market in turn favours the highest bidder.
Well this messy situation can be salvaged馃槉
Allow and encourage increased supply of water at a realistic price, This will allow more people produce and ultimately allow supply to surpass demand. Price would end up selling for even lower than 50naira. To reduce price even further, open the markets completely, then develop and implement policies that will reduce the cost of production.
Price will ultimately fall to 20naira or less.
Problem solved馃槉馃暫.
The Nigerian banks have placed unlimited restrictions on Forex and continually quotes prices that do not reflect the reality on ground, hence the reason the black market continues to thrive ultimately causing the naira to fall drastically over the years.
The Naira was selling at 180 Naira per dollar in 2014 but now selling at 800 naira per dollar and unless the situation is arrested further decline is expected.
