In last week’s article, we identified the
advantages of a stronger naira exchange rate to
include much lower inflation and interest rates,
increasing industrial expansion, with rapidly
rising employment opportunities. We also
explained how a stronger naira will eliminate fuel subsidy and also reduce the size and cost of our
national debt. (See “Advantages of a Stronger
Naira” at www.lesleba.com). This week, we will examine why the Central
Bank of Nigeria still consciously promotes a
monetary strategy that deliberately weakens the
naira; we will also, in the following interrogative
narrative, identify the major beneficiaries of a
weak naira exchange rate. Why does CBN consciously promote a weaker
naira with its substitution of naira allocations for
dollar-derived revenue?
The CBN hinges its defence of this economic
buccaneering on Section 162(1) of the
Constitution, which stipulates that all financial accruals must be consolidated in a federation
account before sharing, in line with current
provisions on revenue allocation. Unfortunately,
the CBN has wrongly interpreted Section 162 to
also imply that all non-naira-denominated
revenue must first be converted to naira before sharing. Nonetheless, it is evident that CBN’s substitution
of naira allocations for dollar-derived revenue
instigates the unyielding dark clouds of excess
naira, and the collateral burden of a weaker
exchange rate, with its diabolical train of
economic distortions. If the CBN does not substitute naira for dollar
revenue, how can beneficiaries spend their
allocations, since dollar is not legal tender in
Nigeria?
The constitutional beneficiaries of dollar revenue
would receive dollar certificates for their allocations of dollar-derived revenue; however,
these certificates must first be converted to naira
at a properly designated commercial bank, before
spending. What is the difference between naira substituted
by the Central Bank and naira exchanged for
dollar certificates from the banks?
The naira substituted by CBN is actually additional
fresh naira supply, which the banks may
leverage on to instigate over tenfold increase in money supply. Thus, the process of substitution continuously
promotes the presence of surplus naira and
induces the disenabling environment of high
inflation and interest rates, weaker exchange
rate, increasing national debt, severely
constrained industrial subsector, high rate of unemployment, increasing fuel subsidy, and
widening gap between the rich and poor. Conversely, the exchange of dollar certificates
directly through commercials banks by
beneficiaries will not increase money supply to
induce the disenabling encumbrances listed
above. In fact, the banks will become more
protective of their naira stock, so that their cash positions are not unduly jeopardized, whenever
depositors want access to their funds. Ultimately,
in such ambience, the naira exchange rate will
become stronger, as more dollar certificates chase
the relatively stable existing stock of naira in the
system. What will be the economic implication of a
stronger naira exchange rate?
Quite simply, the result will be the direct opposite
of the adverse consequences listed above, for a
weaker naira. Thus, perceived systemic surplus
naira will be exorcised from our monetary system, with the welcome development of
sustainable single-digit cost of funds across the
board to the real sector, with inflation rate (closer
to best practice inflation rates elsewhere), at well
below 4%. Consequently, with subsisting low cost of funds
and the absence of excess liquidity, the size and
cost of servicing our national debt will also fall
remarkably.
Such an enabling environment with a stronger
naira purchasing power will rapidly create millions of jobs nationwide, while the increase in
the number of paid workers would further
stimulate consumer demand, which will in turn,
instigate further industrial expansion, with still
more job opportunities. Ultimately, with a much stronger naira below
N80:$1, fuel prices will fall below N97/litre, and
we will save the princely sum of about $12bn
(N2tn) annually from the total elimination of fuel
subsidy; fuel smuggling into neighbouring
countries will also become unprofitable. So, if it’s all so simple, who are those afraid of
dollar certificates and a stronger naira, and why?
Those who are fervently patriotic about the
sovereignty of the national currency, but are
ignorant of the process, which determines the
naira/dollar exchange rate are misguidedly opposed to a stronger naira. The other bastion of
opposition expectedly comes from the major
beneficiaries of the current economically
poisoning process of CBN’s substitution of naira
for dollar revenue. For example, CBN’s recent unbridled
unconstitutional interventions and the reckless
spending, which characterized Lamido Sanusi’s
term as governor, were funded from the apex
bank’s self-styled buoyant ‘own’ forex reserves,
which were ironically consolidated simultaneously with deepening poverty induced
by CBN’s substitution of naira allocations for
dollar revenue. How does CBN’s substitution of naira for dollar-
derived revenue fund corruption?
The liberal latitude for corruption in public service
is facilitated by the ‘eternal’ presence of surplus
naira in an economy, without requisite
accountability; for example, the church rat will expectedly be lean and trimmed of excess fat,
when compared to its close cousins, who live in
holes and crevices in an active bakery, replete
with surplus food. Is the public sector the only beneficiary of the
substitution of naira allocations for dollar-derived
revenue?
No, the banks are also major beneficiaries of this
skewed system. For example, the banks earn
over N300bn annually from the simple business of receiving government deposits at zero per
cent and lending such funds back to government
at double-digit interest rates. Indeed, with such high returns, it is not
surprising that banks show little interest in
supporting the real sector. Curiously, government
has become heavy debtor to the same banks that
have custody of its free funds. Furthermore,
banks also promote capital flight, and make huge gains from round tripping and speculative
consolidation of foreign exchange, despite the
adverse consequences on the economy. The Bureaux De Change (BDCs) are also proxy
beneficiaries of the current system, and they
nonchalantly fund the millions of dollars
couriered across our borders daily. The BDCs
evidently also fund the activities of smugglers
who do considerable damage to our local industries, and constrain employment
opportunities. It is curious that CBN is reluctant to relinquish
dollar revenue to constitutional beneficiaries, but
the apex bank willfully allocates dollars to BDC
operators, who may, in turn sell at a profit to any
customer, including the original owners of the
dollars; i.e. government and MDA.
SAVE THE NAIRA, SAVE NIGERIANS
http://www.vanguardngr.com/2014/06/afraid-stronger-naira/

Anyone who 'covets' our natural resources and exports . . ..

Your views people.

Federation Account need to be abolished with immediate effect. It has no place in true Federalism. It's no wonder, underdevelopment and mediocrity are the order of the day in most states in Nigeria especially the north.The idea of going to the center to get monthly allocation is dead on arrival and will only help create more building blocks of poverty across the country. Nigeria's current Feeding bottle economic approach can never and will never engender a long lasting economic development.