The British colonisers and Bretton Woods institutions–the World Bank and International Monetary Fund- that introduced the current foreign exchange regime know that the template bodes no good for the forever oppressed peripheral economies.
By the way, do Spain and the Netherlands, which respectively buy petroleum and cocoa from Nigeria, have a cache of naira to pay for their imports? And why also, doesn’t the United States receive its international debts in the naira, for instance?
After all, records indicate that America has taken the IMF loans designated in deutsch mark and the yen, respectively currencies of Germany and Japan, its allies in the Organisation for Economic Co-operation and Development.
If those loans were denominated in the currencies of peripheral economies, increased demand would strengthen those currencies. It is interesting that no Third World country leader, except Kenya’s President William Ruto, is raising a querying eyebrow.
This foreign exchange template that requires countries like Nigeria to hold sufficient inventory of foreign reserves in the banks of metropolitan economies to finance imports is from the rule book of Adam Smith, who counselled metropolitan economies to sell their excess industrial (and agricultural) produce to peripheral economies.
The assumption that is working splendidly in favour of the metropolitan economies is that peripheral economies, like Nigeria, will never produce the consumer products that they need, but will always import the same from the metropolitan economies.
Unfortunately, policymakers who run the Nigerian economy have accordingly planned the economy so that Nigeria must always acquire hard currencies to finance big government and a huge import bill for consumer goods.
This is why the Minister of Budget and Economic Planning must include in the budget an assumed exchange rate of N800 to $1. The dollar is the currency that America blackmailed Saudi Arabia and the Organisation of Petroleum Exporting Countries to accept for the sale of petroleum in the international market.
If Nigeria were to be paid in naira for its petroleum, the exchange rate of the naira would be stronger against the so-called hard currencies, like the American dollar, British pound sterling, Euro mark, and Japanese yen.
Members of Nigeria’s rentier class, who profit from the inefficiencies of the ineffectual, half-hearted, attempt to tame the exchange rate regime, are still smiling to the bank because President Bola Tinubu and the Central Bank of Nigeria governor, Yemi Cardoso, do not seem able to tame the wild forex cat, at least in the short run.
A former CBN governor, who later became Emir Muhammadu Sanusi II of Kano, publicly acknowledged that members of Nigeria’s rentier class could obtain forex at the official rate from the CBN, and sell at a higher black market rate.
What you see is a convenient holdout from the days of the British colonialists, which suits the appetite of the rentier class, the domestic colonisers who run Nigeria’s polity, government and central banking system for their own purposes.
The answer to the question, “Why would the CBN be the trader as well as the regulator of forex?” would be, “So that the bureaucrats who run the CBN, the government and their friends will be in a position to tweak the exchange rate to their own advantage.”
A friend says forex is not their product. Yes, of course, the CBN can intervene to regulate forex the same way it raises or reduces interest rate and the cash reserve to control the inflation rate in the financial system.
Today, the negative effect of the inefficient foreign exchange regime is in the submission by Kenneth Okonkwo, actor, lawyer and former spokesperson of Peter Obi’s Labour Party Presidential Campaign Council. He lamented that “people are going to be hungry for the next four years (of President Tinubu’s administration)… because the naira will not appreciate.”
To demonstrate that a productive real sector is the antidote to a weak currency, Okonkwo adds, “(A) strong currency is predicated on (a) strong economy… (A) strong economy presupposes an industrial base and a steady export market.”
In other words, effective fiscal and macroeconomic policies, in the ballpark of ministers of Finance, and Budget and National Planning, are the primary solutions to the forex debacle, not yet the monetary policies of the CBN.
Is there an economic theory, other than a West-centric one, that prescribes that a government or a central bank should be disbursing forex? Why, for instance, should the CBN be allocating forex to airlines?
Like Rufai Oseni, co-anchor of Arise TV “The Morning Show,” who thinks orthodox thinking should be queried, an iconoclast, who doesn’t fit the mould but breaks it, might require the CBN to take itself out of the foreign exchange space.
The first step to realising this radical idea is to introduce fiscal federalism that allows only private entrepreneurs to engage in the upstream, midstream and downstream sub-sectors of the oil industry or any other aspect of Nigeria’s mining sector.
If you consider the question by Afrobeat musician, Fela Anikulapo-Kuti, “How country go dey make money, make people of the country no see the money?”, you will insist that Nigerians should have more direct access to their mineral resources.
Why should revenue from the sale of petroleum, for instance, go to the Federal Government (or the Special Purpose Vehicle Federation Account), instead of going directly to the citizens who occupy the most important political office in Nigeria?
The government should have no business sharing money to sub-national entities. You must have noticed that after the Petroleum Industry Act transformed the government-owned Nigeriann National Petroleum Corporation into a “privatised” Nigeria National Petroleum Company Limited, the bureaucrats are still tenaciously holding on to it. It’s their cash cow.
Why can’t Nigeria use its petroleum resources to make the naira stronger? Paul Alaje, finance and development consultant, and Chief Economist of SPM Professionals, probably an iconoclast seems to be thinking along this radical line that the rentier class will not approve.
Alaje suggests that the NNPCL (which should be replaced by a completely private enterprise that should be traded on the bourse), could sell petroleum to the Dangote refinery (and any other local refinery) and request to be paid in naira, the same way Russia is asking Europe to pay for its gas in the Russian rouble.
Though this template will compel foreign buyers of Nigeria’s petroleum to first rake up enough naira (as foreign reserves) to purchase Nigeria’s petroleum, Nigeria’s rentier class that profits from the centralised hold of the petroleum resources by the government won’t like to see the dollar go out of reckoning within Nigeria’s economic space.
In addition to producing and making petroleum products more available locally, Alaje’s suggestion should make the naira stronger and reduce the significance of the so-called hard currencies to Nigeria’s economy.
Also, there will be no doubt that Nigeria may be saving the 40 per cent of its forex which they say is spent on the importation of petroleum products, probably Nigeria’s most strategic consumer products.
If Nigeria travels this road, the inefficiency and consequent scarcity of foreign exchange regime that accompanies the government being the central auctioneer of hard currencies will evaporate. And those in Nigeria’s economic rentier class, who prey on the system to amass inordinate riches, will be routed.
While private enterprises will have to pay all legitimate taxes to the government, the government itself will have to approach the market, like anyone else, whenever it needs forex.
