Worried that the United States dollar has become an underground legal tender in Nigeria, the House of Representatives recently mandated its Committee on Banking Regulation to investigate the use of the United States dollar and other foreign currencies as legal tender in Nigeria.

The House noted that in June 2023, President Bola Ahmed Tinubu, through the Central Bank of Nigeria, announced changes to the country’s foreign exchange market. It also noted that the President’s intention is to allow market forces to determine the naira’s value, but the alarming exchange rate has impacted Nigeria’s economy, causing untold hardship due to increased demand for dollars and a dollar shortage. In explaining the reason for the depreciation of the Naira, the House said about 90 per cent of Nigeria’s total export earnings are from oil, which is the mainstay of the country’s economy, but changes in the price of oil around the world have a significant impact on the country’s foreign exchange market.

The step taken by the House of Representatives towards fixing the Nigerian economy is laudable. The House should ensure that the investigation is not only properly carried out but that its report should be urgently made available to the authorities for immediate implementation. Certainly, adopting the U.S. dollar for use in Nigeria, alongside Nigeria’s national currency, would require complex legal and regulatory frameworks, potentially leading to confusion and difficulties in enforcement and compliance. Such a policy perpetuates a high inflationary rate for the country. With dollarisation, Nigeria might be forced to relinquish control over its monetary policy. The Central Bank of Nigeria (CBN) would not have the ability to set interest rates or adjust the money supply to manage inflation, unemployment, or economic growth effectively. The exchange rate of the U.S. dollar is influenced by various factors, including the U.S. economy, geopolitical events, and global demand for the dollar. As a result, using the U.S. dollar as a legal tender in Nigeria can expose the Nigerian economy to significant exchange rate risks, impacting trade balances and overall economic stability.

Besides, using the U.S. dollar for day-to-day transactions in Nigeria can create dependency on the economic stability and policies of the United States. It would mean that economic decisions made by the U.S. can have direct consequences on the Nigerian economy, which may not always align with Nigeria’s economic interests and may jeopardise Nigeria’s economic policies. Adopting the U.S. dollar as a legal tender can exacerbate socioeconomic inequalities within the country, as is already being witnessed in Nigeria. Those with access to U.S. dollars, such as rich Nigerian politicians, wealthy individuals, or multinational corporations, may have an advantage over others in transactions, investments, and financial stability. If the U.S. dollar is readily accepted and used within Nigeria, there is a risk of capital flight. Nigerians would prefer to hold their wealth in U.S. dollars due to perceived stability, leading to a drain of capital from the Nigerian financial system; and thus undermining Nigeria as a sovereign country.

A country’s currency is often a symbol of its independence, culture, and economic self-determination. Therefore, having the U.S. dollar as a legal tender in Nigeria may destabilise the sovereignty and national identity of Nigeria. Dollarisation of the Nigerian economy will lead to the loss of the country’s monetary policy autonomy and the loss of exchange rate instruments. It will also result in the nation losing the right to its autonomous monetary and exchange rate policies, even in times of financial emergency.

More importantly, by virtue of Section 20 of the CBN Act 2007, it is illegal for persons and businesses in Nigeria to price goods and services supplied in Nigeria in foreign currency. The Act states, inter alia, that ‘the currency notes issued by the Bank shall be legal tender in Nigeria…for the payment of any amount.’ Furthermore, the Act stipulates that anyone who contravenes this provision is guilty of an offence and shall be liable, on conviction, to a prescribed fine or six months’ imprisonment.

That is the law in Nigeria. Unfortunately, in practice, the CBN Act is flatly being contravened in Nigeria. Politicians and public office holders in Nigeria are believed to be at the top of those contravening this provision without any repercussions. During the last party political primaries and elections in Nigeria, there was strong suspicion that the Nigerian economy was dollarised by the politicians. Besides this, other proponents of dollarisation argue that the fact of the Naira being stipulated by law as legal tender does not amount to the exclusion of the voluntary adoption of the dollar or other media of exchange between contracting or trading parties. This explains why, despite the CBN Act, goods and services are being priced in U.S. dollars in the lobbies of luxury hotels, shopping malls, supermarkets, night clubs, party halls, and expensive boutiques across Nigeria, especially in Abuja. Even multinational firms, especially oil and gas companies, allegedly pay their workers in dollars; a practice seemingly condoned and seen to confer high social class in every corner of the country.

Dollarisation has gained prominence in Nigeria because the Naira has lost its value. Contracting parties in Nigeria prefer the dollar to the Naira as a means of exchanging goods and services, simply because the value of the Naira is constantly fluctuating and unstable. Therefore, rather than worry that the dollar is surreptitiously becoming a legal tender in Nigeria, the Tinubu government, the CBN, and the country’s monetary authorities should work hard to stabilise the Naira. Strengthening the Naira can enhance stability and credibility in the international market. A stronger Naira implies that the government has control over its monetary policy and can maintain stability. As the House of Representatives has rightly pointed out, the CBN should squarely address the impact of the falling Naira against the U.S. dollar and other currencies.

The CBN should implement monetary policy adjustments to stabilise the Naira, address speculative activities in the forex market, and increase the withdrawal limit of the Naira to reduce pressure on the U.S. dollar and other foreign currencies. As the House of Representatives also rightly suggested, the Federal Government should formulate policies and structural reforms to reduce corruption and promote economic diversification within the nation’s economy.