This is in regards to Nigeria’s currency (Naira) weakening and causing the ‘dollar shortage’ in the country to deepen.
In: Economics
The dollar is a US currency. It can only be legally issued by the US. So people in foreign countries or foreign governments that want US dollar either have to borrow it or earn it by exchanging goods and services with someone who has US dollars.
Most countries issue their own currency. However where the people and businesses of that country no longer trust the government of that country, they may prefer to hold and trade in another country’s currency (the US dollar is a common one). This poses a problem especially if too many people refuse to trade in that country’s currency – essentially there is simply not enough of foreign currency in that country to allow for effective trade.
Imagine you run a bakery and can bake 100 loaves of bread a day. But now you feel the Naira is too unreliable and refuse to accept it in exchange for your bread. What can happen is that instead of baking 100 loaves, you only bake 50 loaves because you know that only 50 people have the currency you want (US Dollar). This reduces your output but if this happens all over the place, then the output of the entire country reduces and this can cause enormous hardship since people without dollars cannot buy bread.
If someone wants to import goods, their problem will be that no seller accepts the Naira and only want dollars. They may be forced to borrow dollars in order to do the import but this also means they need to generate enough income in dollars to repay their debt. The dollars may not be available.
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