POPOOLA KEHINDE


THE REAL VALUE OF A COUNTRY'S CURRENCY (NAIRA A CASE STUDY)

"Naira", the Nigerian currency, is no doubt one of the worse hit currency in 2016 by the global ASYMMETRIC SHOCK(a sudden change in a sector that resulted in different reactions in different sectors or different economy depending on how reactive/connected other sectors are) in the oil sector which has made the currency lost over 80% within the year. This has made the Central Bank of Nigeria (CBN) to introduce numerous policies during the period (with the aim of defending the currency) like that of the banning of 41 items from access to foreign exchange (FX) and the devaluation of the Naira. The country's FX reserve also depleted drastically in the process of CBN's attempts to defend the country's currency peg. But in all this, the motive of Nigerians in general and the CBN in particular has always been in parity, which is DEFENDING the naira. Meanwhile, there has been little or no concern on "What the real value of the naira is? Why is it always devalued? and Why has its devaluation always affect the country's economy?

Nigeria has experienced different exchange rate regimes from fixed regime in the 1960s to the mid 1980s and various forms of managed-float regimes(a combination of fixed and floating system) till the present. Not left out in this regimes is the CBN's announcement in June 2016 that the naira would henceforth be completely floated,which in the real sence turned out to be another form of devaluation. Also, what has been and is peculiar to the inception of all this regimes is that they are all a result of FLUCTUATIONS IN OIL PRICES. Therefore the NAIRA IS DIRECTLY RELATED TO OIL PRICES (mathematically, naira is a function of fluctuations in oil prices). Going by this and history, when oil price fell/falls, the value of the naira also fall and when oil price increased/increases, the value of the naira also follow suit.

In all economic policies, there is usually a good and bad sides to it which explains why China has been criticised/benefited continueusly for devaluing its currency and here in Nigeria, the reverse is the case. There in China, Devaluation is seen as "DESIRABLE" for they want to take its advantage of its good side while here Devaluation is "unavoidable"(i.e it came to us willy-nilly with its full wroth). It becomes apparent that during oil price woes, just like the present, that the Naira is an extremely overvalued currency because the CBN lacks the much reserve needed to maintain the peged/fixed rate of the currency. Hence, devaluation becomes inevitable.

The value of a country's currency should irrespective of whether it is operated on a fixed/peg, floating or managed-float currency regime depicts the performance of the country's DOMESTIC ECONOMY and how long the country can maintain the exchange rate system, just like Kuwait has been able to sustain its currency peg combined with a favourable domestic economy. But here in Nigeria, we lack the solid reserve to cushion her currency peg during periods of fixed regime and the domestic economy during periods of partial float regimes. Thus, with Nigeria we can see that a country's GDP figure or its PER CAPITAL INCOME does not always shows the REAL economy value /worth of a country if it is based/depends on external/foreign factors. Periods of increasing GDP in Nigeria has been nothing but time of increasing TRADING OF FINISHED IMPORTED GOOD (for Nigerians and Nigeria has subconsciously inculcate an habit of trading) with the exorbitant or excessive income generated from higher price of oil,thus lies the value the naira.

Conclusively, Nigerians and her managing officials have only tried to defend the Naira through different exchange rate regimes and various policies. But they fail to recognised that it has been built on a weak foundation which is a TRADING ECONOMY(funded by oil revenue), for the real value of a country's currency should reflects her real economy. And not until a new foundation is being laid (which is a PRODUCTIVE ECONOMY, one which can be highly CONTROLLED INTERNALLY within the country and less susceptible to external shocks), the value of the naira will continues to get worse and revolves in its vicious cycle laid by history.

01/01/2017