Never in the history of Nigeria has the masses been more keen on the state of the economy than in the past one year.
The combination of Falling oil prices, depleting foreign reserve, embargo on some imported goods, persistent stagflation, the current 4-month recession, uncertainty and declining hope have formed the entwined Gordian knot leaving policy makers, economic teams, economic analysts and all stakeholders involved confused.

Nevertheless what piqued my interest most is the fall and fall of the naira despite the government's effort to defend via floating exchange rate regime.
Floating
rate is often termed "self-correcting," as any differences in
supply and demand will automatically be corrected in the
market. For example, if demand for the dollar is high, its value will increase, thus making imported
goods more expensive and stimulating demand for local
goods and services. This in turn will generate more jobs,
causing an auto-correction in the market. Hence it will improve the economy and lead to confidence of local manufacturers and investors. it will also lead to transparency and a controlled rate of inflation.

However, five months later, this monetary policy led to a reverse effect due to the following reasons among others:

Nigeria still imports refined petrol from countries with functional refineries and its price is denominated in dollars. Since fuel is very important, the government has fixed the price of petrol at
N145 per litre using an exchange rate of about N280 to $1 and
any increase in the exchange rate will not affect the price of
petrol.
So what the CBN has done is to take the biggest supply of
dollars into the Nigerian economy and send it to petrol
importers directly lest the price of petrol would also be increasing with other goods as the value of the naira falls. With this strategy, petrol takes the front seat in the demand for the dollar at the detriment of other products

Moreover, with the dearth of a solid manufacturing
base and the lack of dollars in banks, investors now turn to the saturated black market to look for dollars in order to fund the importation of capital machineries and raw materials.
Also, since we lack industry, we have no other option but to import finished goods even at a very high price.
This then lead to a higher rate of the dollar and the continuous fall of the naira as it elicit a chain reaction in the general rise of goods and services.

To recap, the way out cannot be overemphasized as many analysts have already rendered great solutions like reviving the refineries, diversification of the economy, increase in capital expenditure, cut in unnecessary spendings, among others. However, the cardinal problem facing Nigeria is the inability to implement these objectives by the executive.

BRACE YOURSELVES!

We just need to export more stuff. Floating the currency will lead to this outcome. The currency will weaken, making exportation more profitable. Government should make it very easy for anyone who owns an undeveloped piece of land to start a cocoa farm and export easily.

ImperfectMe:
Never in the history of Nigeria has the masses been more keen on the state of the economy than in the past one year.
The combination of Falling oil prices, depleting foreign reserve, embargo on some imported goods, persistent stagflation, the current 4-month recession, uncertainty and declining hope have formed the entwined Gordian knot leaving policy makers, economic teams, economic analysts and all stakeholders involved confused.

Nevertheless what piqued my interest most is the fall and fall of the naira despite the government's effort to defend via floating exchange rate regime.
Floating
rate is often termed "self-correcting," as any differences in
supply and demand will automatically be corrected in the
market. For example, if demand for the dollar is high, its value will increase, thus making imported
goods more expensive and stimulating demand for local
goods and services. This in turn will generate more jobs,
causing an auto-correction in the market. Hence it will improve the economy and lead to confidence of local manufacturers and investors. it will also lead to transparency and a controlled rate of inflation.

However, five months later, this monetary policy led to a reverse effect due to the following reasons among others:

Nigeria still imports refined petrol from countries with functional refineries and its price is denominated in dollars. Since fuel is very important, the government has fixed the price of petrol at
N145 per litre using an exchange rate of about N280 to $1 and
any increase in the exchange rate will not affect the price of
petrol.
So what the CBN has done is to take the biggest supply of
dollars into the Nigerian economy and send it to petrol
importers directly lest the price of petrol would also be increasing with other goods as the value of the naira falls. With this strategy, petrol takes the front seat in the demand for the dollar at the detriment of other products

Moreover, with the dearth of a solid manufacturing
base and the lack of dollars in banks, investors now turn to the saturated black market to look for dollars in order to fund the importation of capital machineries and raw materials.
Also, since we lack industry, we have no other option but to import finished goods even at a very high price.
This then lead to a higher rate of the dollar and the continuous fall of the naira as it elicit a chain reaction in the general rise of goods and services.

To recap, the way out cannot be overemphasized as many analysts have already rendered great solutions like reviving the refineries, diversification of the economy, increase in capital expenditure, cut in unnecessary spendings, among others. However, the cardinal problem facing Nigeria is the inability to implement these objectives by the executive.

BRACE YOURSELVES!

I think a huge part of the problem is down to the CBN's isolated policies. The central bank needs to sit down and come up with holistic policies that'll tackle the nations exchange rate crisis on all fronts. For example, too much attention is being paid to the banks and BDC's without concomitant attention on the black market. What's fuelling the black market? Why has dollar inflow reduced considerably and where are the funds being diverted to?
I wrote a thesis on Remittances a couple of years ago and around 2012, remittances into Nigeria was upwards $10b and modestly projected to surpass $15b by 2015. Now, remittances are said to be "countercyclical" meaning they increase considerably in times of economic difficulties. Add that to the money illusion of the Dollar now being worth twice its value a year ago, then there certainly would be huge inflows in form of remittances as diasporans send more money to support families as well as carry out projects since as it were, less is now worth much more.
So why hasn't there been the expected huge domestic inflow? (I don't have the actual figures but the desperate action of the nations monetary authority tells it's own tale.) Well, there has. Just that remittances are finding their way in through the back door to black market exchangers and speculators or worse still, being fritted away through illegal repatriations.
With the huge disparity between the black and parallel markets, official exchangers are sure to miss out considerably leaving the illegal channels as the biggest beneficiaries. So how can the CBN disincentivise the black market in order to make the official markets attractive for remitters?
Prof Charles Soludo used the wand of dollar supply to kill the black market and made the official market rate, the lead rate. By simply flooding the official forex market with dollars and removing all restrictions, the currency disparity between the official and black markets was eliminated. Sadly, Emefiele can afford no such luxury. He must rely on economic ingenuity or, brute force by cracking down on the black market in order to force folks to repatriate funds officially. A crack down on currency exchangers and speculators however has to be preceded by further official devaluations. A ₦100 difference between markets would only force people to withhold their monies till things clear up. Narrow the gap, crack down on black marketers and reap the rewards of our huge diaspora population. But all that would only be a part of the solution...

Seun:
We just need to export more stuff. Floating the currency will lead to this outcome. The currency will weaken, making exportation more profitable. Government should make it very easy for anyone who owns an undeveloped piece of land to start a cocoa farm and export easily.

I cannot agree less

keishik:


I think a huge part of the problem is down to the CBN's isolated policies. The central bank needs to sit down and come up with holistic policies that'll tackle the nations exchange rate crisis on all fronts. For example, too much attention is being paid to the banks and BDC's without concomitant attention on the black market. What's fuelling the black market? Why has dollar inflow reduced considerably and where are the funds being diverted to?
I wrote a thesis on Remittances a couple of years ago and around 2012, remittances into Nigeria was upwards $10b and modestly projected to surpass $15b by 2015. Now, remittances are said to be "countercyclical" meaning they increase considerably in times of economic difficulties. Add that to the money illusion of the Dollar now being worth twice its value a year ago, then there certainly would be huge inflows in form of remittances as diasporans send more money to support families as well as carry out projects since as it were, less is now worth much more.
So why hasn't there been the expected huge domestic inflow? (I don't have the actual figures but the desperate action of the nations monetary authority tells it's own tale.) Well, there has. Just that remittances are finding their way in through the back door to black market exchangers and speculators or worse still, being fritted away through illegal repatriations.
With the huge disparity between the black and parallel markets, official exchangers are sure to miss out considerably leaving the illegal channels as the biggest beneficiaries. So how can the CBN disincentivise the black market in order to make the official markets attractive for remitters?
Prof Charles Soludo used the wand of dollar supply to kill the black market and made the official market rate, the lead rate. By simply flooding the official forex market with dollars and removing all restrictions, the currency disparity between the official and black markets was eliminated. Sadly, Emefiele can afford no such luxury. He must rely on economic ingenuity or, brute force by cracking down on the black market in order to force folks to repatriate funds officially. A crack down on currency exchangers and speculators however has to be preceded by further official devaluations. A ₦100 difference between markets would only force people to withhold their monies till things clear up. Narrow the gap, crack down on black marketers and reap the rewards of our huge diaspora population. But all that would only be a part of the solution...

govt banned western union from giving dollars, instead changing at 300 instead of almost 500

Cromagnon:
govt banned western union from giving dollars, instead changing at 300 instead of almost 500

Inadvertently, fuelling the black market.

keishik:

Inadvertently, fuelling the black market.

unfortunately. Baba fall my hand here

keishik:

Inadvertently, fuelling the black market.

yep
Shoulda known they couldn't determine demand or supply