In a letter to clients, Fitch Ratings stated that the pressure on the naira has reversed the initial narrowing that followed the naira’s devaluation due to limited FX availability and strong demand in the underground market.

“There has been a renewed divergence between the parallel market and official exchange rates since August due to the limited supply of FC (foreign currency), reversing some of the narrowing at June’s devaluation,” the rating agency stated.

According to the assessment by three leading analysts, “This raises the possibility of a further devaluation and highlights the difficulties in sustaining exchange-rate liberalization.”

President Bola Tinubu of Nigeria abolished gasoline subsidies and restrictions on foreign exchange, which led to a 40% decline in the value of the naira versus the dollar and the highest inflation in 18 years.

The official and black market rates temporarily aligned as a result of Bola Tinubu’s decision; however, this alignment was fleeting.

The gap increased as a result of buyers turning to the parallel market due to the central bank’s limited availability of foreign currency.

In 2023, the naira experienced its worst-ever performance on the illicit market, reaching 1,000 to the dollar.

Former Citibank Nigeria chairman Olayemi Cardoso was confirmed as governor of the central bank on the same day that the value of the naira fell to a record low. He promised to boost the value of the naira.

Fitch Ratings stated in its note that despite being bearish on the naira, the central bank “has instructed banks to retain their large FX gains rather than to distribute them as dividends, which will provide a cushion to absorb further currency devaluation and loan quality risks.”

In September, Fitch Ratings noted that the financial data published by the central bank for the seven-year period between 2016 and 2022 contained large gaps that prevented a trustworthy evaluation of the nation’s net reserve position.

It also agreed with Bola Tinubu’s assertion that the liberalization of the exchange rate should make it easier for the West African country to attract capital.

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Central Bank Governor Patrick Njoroge said that the decision was taken after considering a host of factors such as shortage of foreign currency reserves and increase in velocity of money. In addition, transition to the use of bitcoin as a reserve currency could also protect the country from exploitative loans that could hurt its sovereignty.

It believes that using bitcoin could actually help to fight the depreciating shilling. With that, the central bank is making game-changing plans to switch its base currency to bitcoin.

Central Bank Governor Patrick Njoroge told the media, “Our decision to shift to Bitcoin is both tactical and logical. Our currency has always been the punching bag for the IMF, which always claims that the Kenya Shilling is overvalued. This has led to too much pressure on the Kenyan Shilling, and this has a negative effect on the economy. We are losing too much simply because someone at IMF woke up on the wrong side of the bed. Bitcoin will put an end to this.”

The governor firmly believes that bitcoin could make Kenya less vulnerable to the Forex exchange losses. In addition, it will also reduce the country’s debt as the value appreciates. In this context, Kenya could even set an example for those countries mired in a similar situation.

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In addition to this, he emphasized on the necessity to ‘prioritise’ the telecommunication sector: “l therefore plead with the relevant authorities for the repositioning of the sector in the pecking order for the allocation of foreign currency.

“To the newly connected communities l want to assure you that this is a convenience that has been brought to your door step.”

Network coverage is seemingly an important factor in the country’s focus to expand on the grounds of finance and digital economy. “Besides voice communication, network coverage provides opportunities for financial inclusion as well as inclusion in various other social and economic programmes.

“In Zimbabwe mobile money is undoubtedly our main medium of trade and transaction, it is the number one local currency supporting daily chores across all spheres of life, alleviating the cash crunch that the country has grappled with.

“In the recent past and enabling business and households to function with a reasonable level of normalcy,” added Machengete.

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