A more than disturbing news broke early last week when the media reported that the naira was exchanging at the parallel market at N503 to one US dollar! It looks like the naira is precipitously going downhill, like the Venezuelan bolivar soberano and Zimbabwean dollar.
As of 2018, the inflation rate in Venezuela was 1,698,488 per cent and its bolivar soberano exchanged at 3778277.49225 to the American dollar! In Zimbabwe, inflation rate was 557.21 per cent, while the Zimbabwean dollar was equivalent to 0.0027631943 American dollar.
The obvious disparity in the value of the US and the Zimbabwean dollars confirms that indeed there is nothing in a name. Were it not so, both namesake dollars would have been of the same value.
At the foreign exchange window of Investor & Exporter, established by the Central Bank of Nigeria in May 2021, the highest exchange rate of the naira to the American dollar was N412.25, though it closed at N410.18.
Certainly, no patriotic Nigerian wants the naira to plunge so deep into financial abyss. As some have observed, no African economy can absorb 200 million Nigerians if they were all to become refugees.
But things may turn out to be that way very soon because the CBN has pretty much abandoned its monetary policy brief, as it consistently dabbles into macroeconomic policies, maybe because the minister with the longish title of Finance, Budget and National Planning, is “visibly absent”, excuse the oxymoron.
The CBN is expected to: “maintain the external reserves of the country, promote monetary stability and a sound financial environment, and to act as a banker of last resort and financial adviser to the federal government.”
Regrettably, the CBN’s mandate to manage the exchange rate is neither specific nor detailed. The CBN Act 2007 provides: “The exchange rate of the naira shall be determined, from time to time, by a suitable mechanism devised by the Bank for that purpose.”
Nothing can be more imprecise and woollier than that. It’s an open invitation to financial anarchy and disorder. By this arrangement, no one can hold the CBN accountable; its invitation to be irresponsible is writ large.
It is getting increasingly clear that the CBN is losing the war on exchange control. In 2014, when Godwin Emefiele became the CBN Governor, official exchange rate was about N165 to the US dollar. Today, it is N411. But as you know, the black market exchange rate is in excess of N500 to the dollar.
Monetary policy, the job of any central bank, is to manage money supply to achieve price stability and economic growth, manage inflation and generate jobs. This can be achieved through open market operations –acquiring or disposing of bonds– or through adjustments to interest rate.
For example, an expansionary monetary policy can be achieved by lowering interest rate or by reducing statutory bank reserves, in order to improve market liquidity and allow economic entities have access to loans. The opposite will contract liquidity.
Proof that the CBN is not living up to its billing is in the following dismal reports: Irregular price changes that negatively affect market risks; Nigeria’s economic growth declining from 6.3 per cent in 2016 to 2.2 in 2020; and unemployment worsened from 27.10 per cent in 2019 to 33.30 in 2021, though unconfirmed reports indicate the rate is actually 64 per cent.
Though as a former banker, Emefiele should understand money supply dynamics –which is Narrow Money or M1, currency in circulation, money in current accounts, and Broad Money or M2, which is M1, in addition to savings, time deposits and domiciliary accounts– his CBN has not quite ably demonstrated ability to manage it.
Perhaps, the major accomplishment of this CBN is not in its duty as statutory banker to the government, but as a mere cashier, who receives and disburses cash on behalf of the government.
Anyway, continued deterioration of the naira calls to question the competence of those with the responsibility to manage the currency. And if they do not know what to do to reverse the slide, they need to give way to those who can.
By the way, whatever happened to the Presidential Economic Advisory Committee whose members were announced with fanfare just after the reelection of the President, Major General Muhammadu Buhari (retd)?
Though no one expects them to “loud” their counsel to the President from the rooftop, they could as well vote with their feet if their counsel is ignored without justifications. They shouldn’t just be sitting idle warming their seats.
As payment should not be made to anyone for just showing up at work, it should be for job done. To borrow a phrase from the production line, “You get paid for the number of widgets you produce, not for time served.”
As long as the model, whereby the strength of the naira depends on how much of foreign reserves the nation holds, only to finance (mostly) conspicuous consumption, and not on the ability of the domestic economy to produce basic existential needs of the citizens, so long shall the currency remain on a slippery slope.
This outdated model is the argument that the J.L. Hanson classical school of economics makes for accumulation of foreign reserves to pay for import to prop up the Gross Domestic Product of other countries.
Even some classical economists like Harold L. Sloan and Arnold J. Zurcher agree that exchange rate of a currency can be fixed by the nation involved, as persuasively advanced by the late economist and columnist with The PUNCH Newspaper, Henry Boyo, as it could also be free or uncontrolled in an international market.
Balance of Payments, that’s, the difference between total payment and total receipt between two countries, is to the advantage of metropolitan powers who have perfected the suggestion by Adam Smith that a nation that has produced its own needs should consider exporting its surplus to less endowed nations.
The policy of the CBN to hold foreign reserves just to finance import of largely consumer goods, meet obligations to Nigeria’s embassies and multilateral organisations and pay those who print the naira for domestic circulation, is not too clever.
The CBN says it will no longer sell forex to the Bureau de Change operators who neglect to sell to individuals, but instead help to change ill-gotten wealth into foreign exchange or possibly sell to terrorists. But selling forex exclusively to the notoriously slow banks smirks of a sly plan to create a monopoly for the constituency of Emefiele.
Soon after the announcement, the rate of exchange to the dollar spiked to N523 in the black market. Some suggest it will soon exceed N600, though an obviously very pleased Segun Agbaje, Group CEO of Guaranty Trust Bank, has reportedly insisted that the dollar will not trade for more than N423.
When you remember that Emefiele once skewed trading in Treasury bills to the banking industry you may think his policies are made to always favour his constituency. Emefiele needs to know that his mixed “monetarist-macroeconomic” policies defeat the intention of President Buhari to lift 100 million Nigerians out of poverty. Nigeria is the world’s poverty capital.
What Nigeria is currently witnessing is a course in how not to grow an economy. The President needs to look for ways of bringing fresh ideas into his monetarist and macroeconomic policy teams.
