CURRENCY MANAGEMENT 101 - 2

Inflation is taxation, indirect taxation. What causes inflation is new money introduced into the economy by the Central bank, so if Germany has an inflation rate of 4 percent and Nigeria has a 17 percent rate of inflation, it shows clearly the rate of money creation relative to what is already in circulation in the economy.


I must at this point chip in that if no new currency is printed at all, then the value of the currency already in circulation will be rising steadily because it will be getting scarce due to increasing population and other factors. This means that there will be deflation, as in prices of items will start falling. if no new money is printed for ten years except to replace old notes, something sold today for N500 may go for N300 by then. The opposite is the case for when new money is printed which is inflation.


A country with a huge population whose government is not sincere like Nigeria will prefer to raise revenue by printing money. This is because they are afraid to confront the masses frontally to collect taxes because when you push people for money, they will demand accountability. A bad government does not want to be accountable. So they use inflation to tax.


For example, I bought a bottle of big stout for N350 today and it used to be N300. It is a result of inflation. Guinness Nigeria imports some of their raw materials with forex, they pay some staff in forex and etc, so inflation gets to them early. It gets to importers early before it goes round to everybody gradually. The new money printed by government represents what is skimmed off the GDP. The extra N50 I paid on my bottle of stout is partly for the FG, part of the inflation money printed by the CBN. All countries do it but governments whose incomes are majorly in forex do it more arbitrarily for obvious reasons. Governments whose revenue is in local currency taxes are in equilibrum. Inflationary trends are predictable because no government will cause any disruption if its income is secured but if you are expecting 20 billion dollars oil money and you get 7 billion, you have to raise the balance from other sources and the easy way is to print it which causes inflation.


In ancient Yoruba states, the government abused this liberty to manufacture money, then, beads were the currency. The practice of government making beads for use as currency was discontinued in favor of using cowry shells produced by nature in the oceans. Beads continued to be used as jewelries.


So, like someone said, you need a gun to rob a bank but all you need to rob a nation is to control its central bank. I tell you, it is daylight robbery. DAYLIGHT ROBBERY!


SOLUTION


New money should not belong to government. Simple. Let them solicit for money, raise revenue frontally!

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