Through 2015 the Nigerian monetary authorities pegged the NGN at an artificially strong rate of 200 Naira to the USD above the free market equilibrium rate and as a result a black market for hard currencies, the USD, GBP, EUR etc. developed.

The authorities allowed a massive devaluation of the Naira in June 2016. However the official Naira market was not abandoned entirely to a free float; the Central Bank continued to peg the USDNGN rate at a new, cheaper rate and so the black market stayed active. The premium on USD sold in the black market is the gap between the blue line and the white (spot) line in the chart below. The June 2016 devaluation decreased that premium but did not erase it. The premium continued to grow thereafter.

Remittance Options

This is the scenario for millions of Nigerians. You are a family in Nigeria in January 2017 with members of your family working abroad earning USD, EUR, GBP, ZAR, and other relatively hard currencies in neighbouring countries. The family members abroad wish to remit money to their family in Nigeria.

Western Union

USD 100 = NGN 33,750

The Sender sends USD but the Receiver cannot withdraw USD from the local Western Union office — they may only withdraw NGN.

These are the rates for USD remittances sent to Nigeria by Western Union. USD 100 buys 37,500 gross. Of course there will be hefty Western Union fees in addition, about 10% of the sum, so the family receives 90% of NGN 37,500 = NGN 33,750

Source: AbokiFX

2. Bank Wire

USD 100 = NGN 32,000

Send USD to your family in Lagos and again, they are not permitted to withdraw USD banknotes from the Nigerian bank. They can withdraw NGN from ATMs at the rate of $1 = NGN 320. That is worse than Western Union. Again there will be substantial additional fees to pay by both the Sender and the Receiver.

3. PayPal

Users in Nigera may send funds internationally using PayPal but cannot receive funds. Compare the Help from PayPal for Nigeria with that for New Zealand, where users can Send and Receive funds internationally.

The explanation from PayPal, September 2016, in reply to many Nigerian users desperate to receive international payments by PayPal:

4. Bitcoin

USD 100 = NGN 47,100

Send BTC to your family member in Nigeria and they sell them (legally) for NGN at LocalBitcoins.com :

Today, 29 January 2017 BTC 1= USD 921.

USD 1 = 433,700 / 921 = NGN 471

USD 100 = NGN 47,100

There are no fees to pay other than a tiny Bitcoin Transaction Fee, perhaps $0.50.

5. Cash Dollars (Black Market)

$100 = NGN 49,500

Black market rates for cash Dollars.

$1 = NGN 495

$100 = NGN 49,500

Most people in the West have never used a black market to sell hard currency. The procedure closely resembles buying marijuana. (I first bought grass in the Malay Quarter of Cape Town in 1982. I first used a currency black market as a University student travelling in Warsaw Pact/Communist Poland in 1984.) It is invariably an illegal activity punishable under criminal law. You take your stash of dollars to a street vendor and he gives you the local currency — NGN — in exchange for your dollars. It is an uncomfortable and sometimes dangerous transaction. You are at risk to both dishonesty by the currency vendor who might supply counterfeit currency, and imprisonment by the police.

Summary

PayPal does not work in Nigeria

So Cash Dollars convert to the greatest amount of local Nigerian currency but there remains the problem, how does the expatriate Nigerian deliver physical cash dollars to his family in Nigeria? Using Bitcoins is a close number 2 in terms of the total return, but does not encounter the problem of physically transporting currency to the destination. And selling Bitcoins for NGN on LocalBitcoins.com is not a crime, whereas selling USD for NGN in the black market is a crime.

This is a great video about Jacob Hansen, a Dane, selling Bitcoin for Argentinians Pesos in Argentina in 2013 and benefiting from the black market rate for hard currency. (Before LocalBitcoins.com, face to face meetings were necessary.)

Volume of Bitcoin activity in Nigeria

As it has been established that it makes sense for Nigerians to use Bitcoins to maximise the value of their remittances, are they in fact using Bitcoin?

We have three ways to independently verify interest in and use of Bitcoin in a specific economy:

a) LocalBitcoins.com trading volumes,

b) Alexa rankings in that country of LocalBitcoins.com,

c) Google Trends.

a) LocalBitcoins.com Volumes

Local Volume Bitcoin Charts on Coin.Dance is a useful resource but data are is unavailable for Nigeria.

b) Alexa Rankings of LocalBitcoins.com

Nigerians are the most significant users of LocalBitcoins.com globally.

Note that Nigeria and Venezuela (population 30 million) are included in the Top 5 of LocalBitcoins.com Visitors. Both economies have black markets for USD. India takes #3 position; its prominent position might be related to the current purge of high-denomination banknotes in the Indian economy.

c) Google Trends

The great interest in Bitcoin in Nigeria is confirmed by Google Trends:

Bitcoin Ponzis in Nigeria

Sadly, much of the Bitcoin usage in Nigeria is probably related to the MMM ponzi which is rampant there. The OneCoin ponzi is also active in Nigeria.

Source: Blocklink.info

Even the Nigerian newspapers promote the Bitcoin ponzis /*.

Thanks to a few Nigerian guys on the Bitcoin Reddit for directing me to information on the currency black market in Nigeria: MrBobsblocksbobs LondonLink & csixtay