₦airaland Forum

Please, let him have his trial. We are all ears. Anybody that misappropriated money meant for weapons should be charged apropos . Dasuki, if guilty talk so that your sentence will be reduced.. if innocent have no fear.

@jpphilips

We may agree on culpability yet it solves nothing.

A large economy like ours is largely resilient of tinkering and changes need to be on a grand scale. I do not subscribe to gradual change, you claim eliminating government controls is suicidal and that removing the subsidy does not affect the profit of a refiner. I would like to see your ratiocination of that. I am very aware of what happens when the price goes up, the price will remain the same and government will book it as excess. Thats not very useful

Protectionism works , this is a historical fact (See China, Korea and Japan, see SUV's in the United states or dairy in Holland or Airbus in Europe, Boeing in the US), it must be combined with FDI, the currency cant be controlled so strongly and you have protectionism, no capital will come in to finance you, you cant transfer technologies due to people concerned they cannot remit their profits. What other thing will you do apart from protectionism, for the near future many countries can undercut us on price, if we dont have tariffs and bans a free market economy will welcome cheaper goods from South East Asia and destroy the local industry.

I agree that there are great Nigerians who can step up and make changes in the polity, I just think they should also have the opportunity to make a change in private enterprise . With rules and regs, a law enforcement structure that punishes corruption and a financial system that ensures track ability , we dont need no government to save us, we will save ourselves. When the subsidies get removed and the forex gets deregulated, it will unleash the initiative of the populace to solve their problems instead of them waiting for some grandmaster to show us the way.

http://www.bloomberg.com/news/articles/2015-04-29/these-titans-of-oil-are-experts-at-making-bold-predictions

I agree she was wrong, I agree that it was their fault, however what is done is done and we cant fix past mistakes, we need to move forward with the people here now. she was following consensus(see above) very few people called the crash, people tracking shale could predict the crash would occur. However a lot of people in the industry stuck their end in the sand .

The oil subsidy issue is another thread, I am sure you can predict my opinion on that. One of the things helping the subsidy is reduced price of oil, however until that subsidy goes away no local refiner of oil is likely to make money unless government buys all their refined product or unless they export it, think of that for a minute, Flawed demand and supply. However the current set of bureacrats are making the best out of a bad situation, as we also know... Our fellow Nigerians will take to the streets violently to protect their low priced fuel price, not realizing that for supply base stability and easily predictable prices, that price must be allowed for float.

I think my thoughts and yours are converging at the same point, we must resolve our manufacturing issues. I actually believe in the protectionism (banning forex for certain goods to be imported, raising tariffs, outrightly forbidding some items) this pushes the local manufacturing base, at the same time we know some are lobbying for this to go (the corruption aspect).

Big ideas were bereft in the last administration, I myself do not trust any administration to resolve endemic issues. I believe they have to take their hands off and turn the economy over to the people, let us solve our problems, let government simply put the right conditions (rules and regulations). Power would be resolved today if it was 100 % privatized (generation AND distribution), I believe same for fuel supply and manufacturing. How is this for a big idea. Transparent, Open bids for everything, no subsidy on fuel, limited capital controls and high protectionism to facilitate conversion from import based economy.

jpphilips:
Bloomberg forecast for 2014 oil price crash was in 2011 how could you say that a Harvard trained finance minister over shot her parameters?Nigeria's biggest problem lies with individuals like you who cut these politicians unnecessary slacks.
The same way professor onyebuchi chukwu did not have an infra red thermometer in Nigeria's biggest airport in 2014 when we received our index Ebola case, yet WHO bulletin for Ebola alert was in far back 2012, give me a break!!
These guys fail us over and over but we don't learn that is why we always think it is never people's fault, never mind that same people suffer the consequences for their actions.

Let us use subsidy as a more realistic case in point, the CBN governor turned Emir with the Igele masquerade finance minister told us in 2012 that our economy will crash if we continue doling out subsidy receipts, but look at what Buhari has done the few months he is in power, all the middle men who cause the price hike have all been cut off, the price is steady, supply is Ok (except for few union issues) and our subsidy receipt continue going down.
When you have a problem, find a solution to it not a way around it, that is what you are proposing.

Lastly, on the challenges bedeviling the manufacturing sector, have we solved them? what big ideas have we thrown in to revamp the manufacturing sector, knowing that our FOREX depends on them? the last administration was only banning and doling out funds with no results, those are quick fixes, Nigeria is broken, it needs to be fixed, we cant achieve that by doing the obvious.

Imagine what will become of our economy if the Obasanjo's team did not pay off our Paris club debt neither did they recapitalize our banks, just think about it for a sec. The Jonathan's administration had no single "big idea" and you are surprised we are in this mess?
The issues plaguing manufacturing in Nigeria can be fixed if there is sincerity of purpose on the part of the administrators, let us start from there.

@jpphilips

Thanks You sir, now we can get to the real issues.

I am not blaming anybody, the Igele wearing finance minister did not forecast the price of Oil very well. The issue with a manufacturing base are multiple (Electrical Power, corruption, regulations and bureaucracy, protected internal markets)some innovative folks are doing what they can but lets not even get into labor relations. There are solutions, they just need to address the right problem, the forex situation is a symptom of an underlying malaise which can be resolved much easier than manipulating the currency via subsidy, manipulating the currency via controls and fiat actually discourages the resolution of the other issues, how can we say we want a manufacturing base and have capital controls? Where is the financing going to come from? bureaucrats running day to day financial operations instead of demand and supply, a recipe for disaster.

Stating the obvious? More like facing reality, a long slow decline vs a quick one, thank you very much I would take the latter. Our problems are not Zimbabwes problems, we are not a heavilly sanctioned, isolated pariah nation run by a despot who cares more about prolonging his grip on power more than he cares about what his people are going through, and who by the way believes in the power of government controls, price regulations and redistribution of wealth, he really does hate capitalists.

We do not have a forex problem, we have a Balance of trade problem, that is an easier problem to resolve... Lets face the real issues and stop chasing solutions that will not show themselves.

jpphilips:
You are not offering a solution so what is the whole thread about, stating the obvious?

Allowing a devalued Naira with a non existent manufacturing base is suicidal, why people like you prefer we just commit the suicide and get it over with, people like us believe the situation can be managed till the Naira is able to hold on.

How long do we have to manage the situation? As long as we can, I wonder why you are not blaming the Havard trained, igele wearing finance minister that reigned tor almost 4years without a solution and her CBN cohort.

The financial sector runs more on perception the moment we degenerate to the level of Zimbabwe, it will erode our least chance of recovery even when the parameters add up.

To be clear, I am not proffering a solution.I am sayings lets not rip the band aid off bit by bit while hoping for the best. I am being clear and offering a contrary voice to the chorus of hopeful ones out there, hopefull voices saying devaluation should not happen like there is some magic solution that would clear it up, hopeful voices that will act like devaluation can be controlled by Governement, history is clear, issues of demand and supply cannot be price controlled without significant reversals down the line. Just a few months ago the swiss franc decided to stop pegging their currency against the euro, the pegging was preferable but the swiss ran out of cash. Thats what I am saying, over and over again this problem comes up, governments fight it then give up.

This is a problem that history states as fundamental, there is no easy fix. I am looking at the complexity of the problem and saying that there is no current solution. Forex taxes etc are all currency controls. The idea of us becoming less dependent on imports is an old one and our internal economy is not singularly oil based, our government revenue however is based on oil . Hence most forex s.

I am proposing getting over the problem as quickly as possible, I am beyond trying to stop the devaluation from occurring, barring a significant rise in oil prices within 2 years. I do not see a way of stopping devaluation. I am being as forthright as I can be.

If its not inevitable I would be happy to see it forestalled, I am skeptical at the idea of any Government, anywhere in the world... managing their currency without having significant room and resources to do so.

disclosure: I hold no trades on the naira/dollar exchange at this time.

http://www.telegraph.co.uk/sport/football/teams/real-madrid/11947292/El-Clasico-corruption-storm-as-linesman-told-to-favour-Real-Madrid-by-referee-in-La-Liga-clash-with-Barcelona.html

The match officials for one of the most famous fixtures in world football have not yet been confirmed but it is understood one of the pre-designated linesmen for the fixture was contacted by the pre-designated referee who told him that the league's refereeing committee was putting pressure on the officials to favour Los Blancos.

In a court filing published by Spanish radio station COPE on Wednesday, the official, whose identity is to remain a secret for fear of reprisals, claims pressure from the committee was put on the senior referee who is expected to take charge of the match on Nov 21 to handle the game in a manner that would "prejudice the interests of one of the clubs involved, Barcelona".

http://www.espnfc.us/spanish-primera-division/story/2676687/referee-told-to-back-madrid-in-barcelona-clasico-says-lawyer

A La Liga assistant referee has told anti-corruption officials he was pressured by the Technical Committee of Referees (CTA) to favour Real Madrid in the upcoming Clasico against Barcelona in November.

La Liga president Javier Tebas dismissed the accusations as "ridiculous," saying that "there is nothing prepared here for anyone."

Jacinto Vicente, the lawyer of the unnamed official, told Sport that a formal complaint has been made to the public prosecutor's office in Barcelona, with the assistant referee told to "prejudice the interests of one of the clubs, Barcelona."

http://www.sport-english.com/en/news/liga-bbva/sport-speak-jacinto-vicente-the-man-behind-the-complaint-4607827

Jacinto Vicente, the lawyer who has presented the case of pressure being put on officials for the Clasico, has explained in a phone call to sport what the process was of presenting the complaint to the public prosecutor's office regarding the threats to the game between FC Barcelona and Real Madrid.

"One person let me know about a referee that had a problem and wanted to talk with me. It's deducible that he is not from Barcelona (because if he was he would not have been chosen for the game). For a professional reason I had to go to Barcelona, where I met with him. He explained everything that had ocurred and wanted to go public with the pressure being put on him because it's the only way to clean up Spanish football and the only way to change a closed system," explained the lawyer.

@jpphilips

http://mobile.reuters.com/article/idUSL8N12N32I20151023

I will respond to your challenges at my leisure in the next few days. The summary is this, its not a question of "allowing" devaluation.

It has already happened, the currency controls are just a levee holding the flood waters back. I hope I have made it a bit plainer, the intervention can only last for a finite time before the reality becomes clear.

Business is a skill acquired by practice and good habits, the paperwork is just that, paperwork , my Grandmom didnt have any MBAs but grew a very large distributorship, I was picking on the dude... But thanks for taking me literally, I will adjust to your rhetoric.

jpphilips:
The guy actually thought that those successful Anambra traders had any MBa, lol, how Nigerians honor pieces of paper, the Richest men in Africa in the 40's and early 50's, the Ojukwu's and the Dantata's had MBa? You see why I hardly hire all those English speaking certificate carrying time wasters. Most businesses world over including mine run on common sense.
Dangote get MBa? but he made money first to be able to afford someone who has one abi?

Very comprehensive breakdown. Thanks for the time you are spending responding to the thread, I truly appreciate it.

Yes, devaluation would favor portfolio investors. As a lot of hedge funds are buying up emerging market ETF's in order to get better rates that what is obtaining in low interest environments, bankers will also be able to access capital, as well as manufacturers. tut tut at the word "greedy" capitalists, but I will let that be. Yes, the source of increasing profit is blocked. Keep in mind that a lot of these folks you quietly demonize are driving our economy. The internal GDP is almost ALL driven by private enterprise (Banking, movies, small business, Telecoms) and not by Oil.

Bankers, Manufacturers , Companies with increasing share value and even "greedy" capitalists hire people, source B2B goods and services, if they have to re align in order to deal with a sudden dry up of capital, I daresay this affects EVERYBODY. job losses are already on the horizon in the banking industry as they tighten up ship in anticipation of recession, putting capital flight next to it is not the best approach. We need to encourage private enterprise!

Yes the Government must serve the people, however does it serve the people by propping up a currency regime that is plain unworkable? My follow up will be a proposal to float the blessed currency. I am not being contrary for the sake of it, market transparency is the only way any one can do planning, as opposed to obtuse government policies. Naira devaluation with Babangida was exacerbated by very poor economic policy, significant concern about the government led to foreign capital not coming in , ease of business then was worse that it is now! complex issues abound in our polity, transparency in one sector, at least seeing that currency is not remote controlled by moved with respect to demand and supply permits better planning.

We are in the beginning of a long term bear market for Oil, I have advised all those close to me do their dollar transactions now and not wait for "better rates". The dollar is also strengthening by the day against all currency (flight to safety as China, India and Brazil slow down) in which case its not the naira weakening its the dollar strengthening. Investments made in Nigeria will yield less in a year because of the currency moves ( you can lose money investing in Nigeria), at the same time corruption, crippling bureaucracy and lack of security is discouraging the growth of local businesses. We need transparency any way we can get it, a fully floating currency (not CBN funneling almost all dollars through its own doors) is what is needed.

Making it harder to move cash freely out of Nigeria due to capital controls is not good policy, the naira is besieged. The view globally is any dollar put into Nigeria now will be worth more tomorrow. Diversification is a cry we have being shouting for over 3 decades, it is happening .s.l.o.w.ly.

GenOrumov:
@ laudate

Its great to learn that you too are intelligent and well informed against portfolio investors, bankers, currency speculators, some manufacturers and greedy capitalists who have had their source of earning MORE MONEY blocked for the time being.

Imagine the government agreeing to devalue the naira and thus set a date for the commencement of that policy, you will see that these bunch of capitalists mentioned above will go ahead to buy all the dollars in the market in anticipation of the windfall that they will benefit from. The anticipation of the devaluation exercise was part of the reasons why dollar was so high to the naira some months ago.

@ Realdeals

"but government is not just about business but protection of the interest of its citizen especially the larger populace"

You couldn't have said it any better. Thumbs up.

@ Hakagure

My point is before we devalue our currency, we should diversify our economy so as to ensure what happened during Babaginda's regime doesn't happen to Nigerians again. So until we can't postpone the evil day no more (we won't even get to that evil day if we start that diversification today), I support that we continue to use our dollar reserve (dollar that won't even enter my own hands but will end up being looted by politicians and their croonies) to protect the naira.

Just checked the charts. Oil was 116 USD in March 1980. and fell to 33.7 from around 60 USD in march 1986. I mis wrote "3$". If you look at the charts look very similar though, I think its is clear that Oil is in a long term bear market. The last one was for 15 years!

Corruption is a big darn deal, it thrives in protectionist regimes chock full of subsidies. If we devalued then with such low forex deman? How much longer can CBN defend the naira against devaluation in this day where our forex demand is in the billions of USD monthly?

989900:
Nigeria's major problems have always been: lack of patriotism, ineptitude, greed, selfishness, and malfeasance.

It's less about oil prices.

BTW, we never sold oil at $3, the lowest was $9-$17 in '86 which would be roughly (averagely) $25 in today's money. And that was coming from a $19-$32/barrel (averagely $72/barrel today's money) band between '79-'85.

If we grew external reserves from less than $300m in '73 to $3.5b in 1980, how did we deplete that to $700-800m in '83 -- Shagari and his goons laid the template for Jonathan with their cluelessness, greed, ineptitude, unpatriotic deameanor, laced with perfidy and gross malfeasance.

Even at that, the exchange rate was relatively stable, compared to IBB's selling us to slavery by 'genocidal devaluation'.

I mean what was our forex demand then, with a population average of 75m between 1979-1986, working refineries (we didn't need dollars to import fuel), with relatively fairly stable power supply (we weren't importing generators like we do now . . . on my street then only 2 families had 'gen', we weren't importing alternative power solution gadgets), there were no internet orders, no China, we imported far less food then too.

And the above are the things that account for a large chunk of our forex demand.

So far, the only thing devaluation upon devaluation has done for us is, impoverish us!

I am aware that devaluation leads to price inflation and increases the paper value of production costs . Thats the basics, you seem aware of this but what are you doing anything about?

No Vex, I am a theorist? Why are you hurt by what I am saying if its all theory. I am just giving an opinion on your business based on the information you gave. I should not attempt?.... You are barking up the wrong tree, business operators like you that refuse to face the facts but come on Social Media to say woe is me. Instead of coming up with plans in case it does happen. Thats wishful thinking. Your results speak for itself, your management was unaware of what would happen if they raised prices, Had no contingency for sourcing raw materials by buying futures to give you some time to react (fyi they sell futures in the open market). I guess you answered your own question about your company. Since "An MBA is not an end in itself, it is what you do with it that matters.

Best thing you can do is prepare a contingency in case naira devalues instead of bashing me for being a currency speculator . Which full disclosure.. I am not. I have never traded dollar - naira swap in my life, and do not even have a current forex trading account. That said, I probably put some skin in the game, you should get your facts right before you theorize about my intentions or capacity.

And yes, I do question your management... you should too. I guess you are management.

laudate:
Guy, you know nothing about my business so please do not even attempt to theorise. Each time the naira is devalued, what happens to inflation in local terms? What happens to production costs? Everything gets affected. And your statement about my company being blind to see the writing on the wall, is simply put quite condescending and myopic on your part, as you are rushing to pass judgement on a company you know nothing about!!

So what is this hype about having an MBA to get affairs in order? I already have one, so kindly do not presume that the management does not know what it is talking about. An MBA is not an end in itself, it is what you do with it that matters.

Continue with your devaluation mantra. I just hope the powers that be, will defend the rest of us from currency speculators like you!

Emotional responses to a problem, we would be better served by understanding WHY we devalued in the late 80's , early 90's. I lived through the massive retrenchments and significant inflation, the 1-1-1 to 1-0-1, from Anchor to Planta to Margarine, from new cars to Tokunbo, form Mothercare to Chinese. They key question is why?

To think it was just due to Babangida seeking approval is flawed, he followed a military regime, nobody was sanctioning us for being a military regime.

We did not have the forex to keep defending the naira , esp at $3 a barrell (the last major crash in oil prices before this time).

Awesome responses. I agree that people suffer during devaluation. The more prepared we all are, the less we will suffer. Businesses should start looking for ways to pick up the slack and make goods within the country. The struggle is that due to capital controls, capital is already fleeing the scene. Where will the funding to create businesses come from? Co ops need to step up to replace banks (who hoard their resources) and corruption must be fought quite strenuously to the extent that it can (bribery, extortion) and Power generation / downstream petroleum industry must be resolved/made efficient. It is these items that make people suffer and not just devaluation. Devaluation would be fine if wages floated up alongside it but our situation as not only a mono economy but an employer market (with horrendously high unemployment) Employers will not raise wages. All these make people suffer, its not about Subsidy or devaluation, there are so many other pinch points.

More responses please. I will post a follow up soon.

Please understand me. I am saying devaluation cannot be easily controlled. Finite forex reserves are needed to keep the naira at this level right now. We do not have unlimited forex so the naira must devalue ... its only a matter of time. This is not about personal benefit.

Realdeals:
The OP is definitely thinking like a businessman whose business has been affected by some of the policy in the Forex market. People like you constitute less than 10% of the population and will benefit if the currency is devalued. But come to think of it, what happen to the over 80% Nigerians that will groan if the currency is devalued. Am sure President Buhari is aware of some of your concern but will not agree to devaluation at the detriment of majority.
To administered Nigeria as it is now, you don't have to think like someone that lives in the USA.

Please, no insults abeg...joor. I understand your comments but please for the sake of keeping conversation flowing and intellectual, no insults or partisan politics. Na beg I don beg you o.

warrior01:
But @Op, who amongst the analogue advisers is going to explain all these to the chief dullard in Aso Rock? God help us all

The nature of an import dependent country is that the price of imported goods go up due to inflation and also that the value of the currency depreciates due to the skewed balance of payments. The source of the issue is there in your post, we dont have the reserves. Thanks for the information on the monthly dollar inflow vs outflow.

Bevista:
There are dire consequences in allowing an Import-dependent country to continue devaluing its currency. The vast majority of Nigerians are either unemployed or underemployed. This means that the purchasing power of these category of people are limited. If the naira is allowed to depreciate further, this will make imports more expensive, thereby making final consumer goods also more expensive. Since nigeria imports almost all its fuel demand and nearly all our goods are transported by road, this will lead to an increase in prices of virtually everything in the market (a case of imported inflation). An already impoverished population will find it difficult to purchase more expensive goods, leading to a problem of unsold inventory for businesses.

You may also wish to note that our Foreign Exchange demand by importers as at June was about $8billion monthly, higher than our total Foreign Exchange earnings of around $7b. If the CBN continued to meet all these forex demand in the face of dwindling oil price, then this would have resulted in a steady decline of reserves. If oil prices do not rebound, then we would eventually run out of reserves. The CBN had to exclude certain items from forex to preserve the reserves.

The exclusion of the items from forex is also intended to encourage local manufacturers to seize the opportunity to meet the supply gap. This should create local jobs and save Foreign Exchange. My only worry is that the government has not articulated its Fiscal Policies to compliment CBN Monetary Policies.

No

yanabasee:
OP, are you Buhari's special aid on currency depreciation?

I agree that the system needs to be diversified AND fiscal policy defined AND a jobs initiative started. What I am saying is that inevitably, the CBN must stop defending the naira due to limited forex reserves. We have to prepare for this no matter what Buhari says, the economics is clear.

Diversification is already ongoing, the issue is our "ease of doing business" as a country is not good. Corruption alone ensures that some private businesses involved in import export will not be successful, This is a problem that will be ongoing.

In the short term corruption is our biggest issue. It may be a few months to a year before the CBN runs out of dollar reserves to keep the dollar at the same level as today. (but has been a lot of pressure on the price of oil, once peace comes to Syria and Libya it will be even more unless Shale gets wiped out due to lower prices)

This is not as simple as "thou shalt not devalue"... devaluation is coming, and currency controls and fiat currency makes it clear that there is a lot of pressure on the CBN right now.

GenOrumov:
Sorry I didn't bother to read the whole article except the ninth paragraph which listed the effects of pegging a country's currency as against other currencies because I still stand by Buhari's decision not to devalue the Naira.

Pardon my ignorant view. I am not an economist but you don't have to be an economist or be learned to figure out that Nigerians (the middle class and the poor which are in the majority) will be doomed if that happens. The rich will get richer while the poor will get poorer.

For God's sake, we all know that devaluation is the right thing to do in a sane clime where "all things being equal" but you and I know that all things are not equal in Nigeria e.g 2+2 is not 4

The effects you listed above let me take for instance - drives up cost of capital
As an entrepreneur myself, I feel the pinch of having to spend more in my quest to grow my business but from my own point of view, that will be nothing compared to the hits I will receive if the naira is devalued as a result of the spiral effect of that decision. This further goes to buttress my point that the rich will get richer while the poor will get poorer because as a business man trying to stay in business, I will transfer the burden from my business to the consumers. While I get rich, they will get more poor(er)

*i have other sentimental reasons why the naira shouldn't be devalued but tired to be compelled to go beyond this point at the moment.

Parting shot - Before the naira is subjected to a debate whether to be devalued or not, the government should have put other things in motion e.g the diversification of our source of income from crude oil alone to other things.

God bless you bros, not offended I understand I touched a nerve but I need to defend myself. No vex at my response.

Theoretical analysts? I run a successful business, work for a succesful business that performs active currency hedging in order to protect against currency fluctuations and was raised as an economist, I lived through SAP and saw large fortunes reduced to paper because people could not see the inevitable, my whole family runs businesses. Your projections were made nonesense of because your company was too blind to see the writing on the wall, and continues to be blind to the inevitable. You will be a casualty if this continues, plus your product is undoubtedly fragile top price and currency moves. You should probably go hire an MBA to help get your affairs in order. Seriously, jobs depend on your ability to face reality and not just engage in wishful thinking.

Balance of payments is real! You cannot just say do not devalue, you have to intervene with dollars in order to keep the naira at the same level, if you run out of dollars you cannot pay your debts, before that happens the CBN will stop defending the naira and will have to make it float.

This is inevitable, prepare for it.

laudate:
God bless you!! Some theoretical analysts that have never run a business before, and are unable to gauge the impact of devaluation, will sit in one corner to postulate crap about the naira.

The recent devaluation done a few months back made nonsense of our company projections, and drove up the cost of our imported raw materials by more than 85%. We tried to increase prices of our finished goods to cover the increase, and guess what? We had the worst case of unsold stock in history! People simply could not afford to buy the products, at the new rates. The few that bought, placed orders for much smaller quantities than they normally did.

Nigeria is more or less a mono-product economy dependent on oil. The price of oil is fixed internationally, and not by the individual countries producing the product. So why on earth are we devaluing??! It just doesn't make sense!

Here is a response I made on a much older thread, I believe it is worth its own thread(s)

First we must define the space we are talking about. Specifically here we are talking about the foreign exchange market.

The foreign exchange market is where all the worlds currencies are purchased and sold, it is the biggest finance market in the world, prices are set by demand and supply, in the event of a dollar peg (as opposed to a freely floating currency) the country pegged to the dollar ensures that it buys its currency at a fixed ratio compared to the dollar irregardless of demand and supply, this is known as defending the currency, other ways a currency can be defended is by using "currency controls". These include


Banning the use of foreign currency within the country
Banning locals from possessing foreign currency
Restricting currency exchange to government-approved exchangers
Fixed exchange rates
Restrictions on the amount of currency that may be imported or exported

I will now steal wholesale from Wikipedia to define how this "pegging " is done.

Open market trading

Typically, a government wanting to maintain a fixed exchange rate does so by either buying or selling its own currency on the open market. This is one reason governments maintain reserves of foreign currencies. If the exchange rate drifts too far below the fixed benchmark rate, the government buys its own currency in the market using its reserves. This places greater demand on the market and pushes up the price of the currency[citation needed]. If the exchange rate drifts too far above the desired rate, the government sells its own currency, and buys foreign currency, thus reducing the pressure on demand, and its foreign reserves fall.

Fiat

Another, less used means of maintaining a fixed exchange rate is by simply making it illegal to trade currency at any other rate. This is difficult to enforce and often leads to a black market in foreign currency. Nonetheless, some countries are highly successful at using this method due to government monopolies over all money conversion. This was the method employed by the Chinese government to maintain a currency peg or tightly banded float against the US dollar. Throughout the 1990s, China was highly successful at maintaining a currency peg using a government monopoly over all currency conversion between the yuan and other currencies.

As anticipated, Nigeria pegs its currency, defends it currency and controls its currency. keeping a fixed currency is an active process in which the nation makes it prohibitive for small buyers/sellers of foreign currency to "short" its currency or drive its currency lower, keep in mind that controlling currency is currently an exception and is not a rule, some countries actively keep their currency devalued (but we will get to that later, this is referred to as currency manipulation). One of the reasons the naira devalues is simply because the dollar got stronger, another reason is because our forex reserves are reducing as the price of Oil falls, you , I, Buhari nor the Saudis can control the price of Oil any more (OPEC did successfully for a long time but are being under cut by Shale)

These controls and pegging have the following effect on an economy.

Drives up cost of capital, discourages FDI. This disproportionately affects small companies.
We spend forex defending the naira ($3.4 just keeping it pegged as per BBC)
- http://www.bbc.com/news/business-33258942
Create a parallel market for people who want to import goods on the non approved list
Drive up prices of good on the market (effectively inflate the market for imported products)
Capital flight due to high cost of capital, so FDI leaves. Rightly capital anticipates taxation as the next move after currency controls (in order to control inflation) hence capital flees the country
Whats the extreme case: Lets imagine the pressure continues and CBN keeps defending the currency as capital flows out and balance of payments worses. Well, we dont print dollars (and thats what the CBN needs to use to defend the naira) so eventually, our forex gets so low there is a chance we do not make our debt payments, seeing this impending cliff event CBN will either stop propping up the dollar or stop making debt payments . If you stop making debt payments... well. Thats the nuclear option.

Once they stop propping up the naira, the naira crashes precipitously and the stock exchange with it (jobs go, companies fail) The exact same thing you tried to avoid happens all at once. The govt begs IMF or World Bank for a massive infusion of dollars (thats what we neeed, not naira which we can print willy nilly) and then in return IMF/ World Bank asks for higher taxes, austerity, privatization of everything in sight then kindly gives us a loan in return which we use to arrest the precipitous decline. Meanwhile we go through another period of Austerity.

The dark dark thing is this, this has happened before. Buhari refused to devalue in 82, Babangida came in and had NO CHOICE, plunged us into severe austerity (SAP). Same macro events (oil price tanked, Nigerias balance of payments skewed) led to same disastrous events (massive devaluation and privatization, failure of companies and the stock exchange and austerity).

To be continued.. Responses welcome



Cc: Ishilove Lalasticlala

First we must define the space we are talking about. Specifically here we are talking about the foreign exchange market.

The foreign exchange market is where all the worlds currencies are purchased and sold, it is the biggest finance market in the world, prices are set by demand and supply, in the event of a dollar peg (as opposed to a freely floating currency) the country pegged to the dollar ensures that it buys its currency at a fixed ratio compared to the dollar irregardless of demand and supply, this is known as defending the currency, other ways a currency can be defended is by using "currency controls". These include


Banning the use of foreign currency within the country
Banning locals from possessing foreign currency
Restricting currency exchange to government-approved exchangers
Fixed exchange rates
Restrictions on the amount of currency that may be imported or exported

I will now steal wholesale from Wikipedia to define how this "pegging " is done.

Open market trading

Typically, a government wanting to maintain a fixed exchange rate does so by either buying or selling its own currency on the open market. This is one reason governments maintain reserves of foreign currencies. If the exchange rate drifts too far below the fixed benchmark rate, the government buys its own currency in the market using its reserves. This places greater demand on the market and pushes up the price of the currency[citation needed]. If the exchange rate drifts too far above the desired rate, the government sells its own currency, and buys foreign currency, thus reducing the pressure on demand, and its foreign reserves fall.

Fiat

Another, less used means of maintaining a fixed exchange rate is by simply making it illegal to trade currency at any other rate. This is difficult to enforce and often leads to a black market in foreign currency. Nonetheless, some countries are highly successful at using this method due to government monopolies over all money conversion. This was the method employed by the Chinese government to maintain a currency peg or tightly banded float against the US dollar. Throughout the 1990s, China was highly successful at maintaining a currency peg using a government monopoly over all currency conversion between the yuan and other currencies.

As anticipated, Nigeria pegs its currency, defends it currency and controls its currency. keeping a fixed currency is an active process in which the nation makes it prohibitive for small buyers/sellers of foreign currency to "short" its currency or drive its currency lower, keep in mind that controlling currency is currently an exception and is not a rule, some countries actively keep their currency devalued (but we will get to that later, this is referred to as currency manipulation). One of the reasons the naira devalues is simply because the dollar got stronger, another reason is because our forex reserves are reducing as the price of Oil falls, you , I, Buhari nor the Saudis can control the price of Oil any more (OPEC did successfully for a long time but are being under cut by Shale)

These controls and pegging have the following effect on an economy.

Drives up cost of capital, discourages FDI. This disproportionately affects small companies.
We spend forex defending the naira ($3.4 just keeping it pegged as per BBC)
- http://www.bbc.com/news/business-33258942
Create a parallel market for people who want to import goods on the non approved list
Drive up prices of good on the market (effectively inflate the market for imported products)
Capital flight due to high cost of capital, so FDI leaves. Rightly capital anticipates taxation as the next move after currency controls (in order to control inflation) hence capital flees the country
Whats the extreme case: Lets imagine the pressure continues and CBN keeps defending the currency as capital flows out and balance of payments worses. Well, we dont print dollars (and thats what the CBN needs to use to defend the naira) so eventually, our forex gets so low there is a chance we do not make our debt payments, seeing this impending cliff event CBN will either stop propping up the dollar or stop making debt payments . If you stop making debt payments... well. Thats the nuclear option.

Once they stop propping up the naira, the naira crashes precipitously and the stock exchange with it (jobs go, companies fail) The exact same thing you tried to avoid happens all at once. The govt begs IMF or World Bank for a massive infusion of dollars (thats what we neeed, not naira which we can print willy nilly) and then in return IMF/ World Bank asks for higher taxes, austerity, privatization of everything in sight then kindly gives us a loan in return which we use to arrest the precipitous decline. Meanwhile we go through another period of Austerity.

The dark dark thing is this, this has happened before. Buhari refused to devalue in 82, Babangida came in and had NO CHOICE, plunged us into severe austerity (SAP). Same macro events (oil price tanked, Nigerias balance of payments skewed) led to same disastrous events (massive devaluation and privatization, failure of companies and the stock exchange and austerity). So your analysis is...over simplified and distorted.

I anticipate your response.

I have read it, I will respond in detail on your own topics. Needless to say... I disagree with you, currency devaluation is not something any one can control, it is one of the few things that have to float unless you have a surplus in your balance of trade.

989900:
More like distorted-- I wish there is a more subtle way to say this; just too much 'over simplification and distortion'.

BTW, back to my question, the number one driving goal of devaluation is, to stimulate foreign investment/inflow of forex and drive exports.

Check my profile if you do have the time, and read my 2 topics on devaluation.

Socialism is a failed paradigm, Govt is not in the business of making a profit, hence govt run enterprises are inherently inefficient and cannot compete in an open market.

Emmahunk:
Nigerians and English. What has the Country benefited from all the years of Privatization?
Take power for instance, despite the fact that hundreds of thousands were thrown into the labour market, power supply had even became worse until the coming of PMB.
Since you chose to talk about his antecedents, don't forget that
IF PMB SAYS HE CAN DO SOMETHING THAT BY THE GRACE OF GOD, HE SURE WILL DO IT. Abeg make una leave him alone for now

Devaluation is a question of demand and supply, if you dont sell anything to other countries, you have to buy their currency with yours. Leading to you having less of your own currency, after which you have to print currency (currency is by fiat) then you print more, which devalues it. That is an extremely simplistic view but it should get you a bit of an intro. Nigeria can either devalue its currency or simply stop importing because it wont print money (and hence maintain a fixed money supply instead of floating it)

989900:
Can the OP, or anyone for that matter, name 3 countries that are totally capitalist?

What is the major driving point behind devaluation of currency?

N750 (seven hundred and fifty naira) in 1983, would get you $1,000 (one thousand dollars).

Today, N750 would get you $3.

Tell me, what have we gained so far in devaluation?

Both are not owned by the government. They are owned bu shareholders with no Government oversight.

Republlican:
I read small.of what the op is saying but grabbed a lot can OP kindly explain why the British government have BA and BP.

Nonsense

When all you do is make enemies, train insurgents who raid your neighboring countries, advocate the break up of all your neighboring countries. Fund terrorists that kill, and then also seek to create a United States Of Africa with Tripoli as its capital, and ALSO when you decide to stay in power for decades and decades in the information age. You get destroyed, humiliated and killed, his own people did him in, his own neighbors supported the west against , NIGERIA threw in the deciding vote, why? Cos the guy trained the key members of NDVF, MEND, Boko Haram, Tore apart Chad, disturbed Niger and cast eyes on Sudan. He had to go.

He was not mad, he had no friends.

Its like when Snoop left Dre, nothing was the same... and when they did 2001 songs together, it was awesome.

Dbanj is a legend... but his music does not move ME anymore. I cant speak for any one else, wish he gets his mojo back cos I liked his style.

Keep talking and expose your tribalist sentiments please.

By no means stop on our account.

YOU are the problem with the Igbo, people like you are the biggest problem with Nigeria, fortunately... the person you cause the biggest problem for is of course with yourself.

Tribalism has no place in national discourse. You just come here spout Igbo are being cheated, please itemize the list for us to see.

Vicotex2:
Why he no come Aba come talk this Rubbish that day.
He think say na d zoo armies go help am

Be careful what you wish for, without those guys holding the line BH would have been in Abuja by now, get your head of a dark place and reason for yourself instead of believing propaganda.

Omenkata:
Buharian solder

i will never support them

they can all die for all i care

Like some1 above said, sounds like PTSD. Just take care of the guy and give him behavioral therapy.

C this one threathening, you dont have enough jails to lock every1 that is talking up. And who gave you authority to speak for the president any way. Make an example of a few then come back and talk, you will see whether we wont add Supreme Dictator to the prenom of the president at that time (maybe thats what you want).

The president should fear the people, we put him in... we will vote him out, the people should not fear the president, he is our servant and we criticize as we like, go and see GEJ if you dont understand what I just said.

nwaanambra1:
[size=18pt]MY FRIEND! I HOPE U KNW ITS AN OFFENSE TO SPEAK CARELESSLY ABOUT THE PERSON AND OFFICE OF THE PRESIDENT.

STOP FOOLING YOURSELF THINKING ITS A FACELESS FORUM WHERE NO ONE CAN SEE YOU - PLS BE ASSURED THAT TECHNOLOGY HAS MADE IT POSSIBLE FOR "THEM" TO SEE EVERYBODY. YOUR LOCATION, YOUR HOUSE, WHERE YOU ARE AT A PARTICULAR POINT IN TIME, EVEN YOUR DRY BANK ACCOUNT.

STOP INSULTING THE PERSON AND OFFICE OF THE PRESIDENT OF THE FEDERAL REPUBLIC OF NIGERIA! IT IS A JAILABLE OFFENSE.

DON'T TAKE THE PRESIDENT'S MAGNANIMITY FOR GRANTED! HE MAY NOT KNOW WHEN THE AGENTS TAKES YOU IN FOR QUESTIONING!

FREEDOM OF SPEECH IS GUARANTEE UNDER THE CONSTITUTION BUT FREEDOM AFTER SPEECH IS NOT GUARANTEED UNDER ANY CONSTITUTION WORLD OVER!

YOU MAY TOO BLIND TO NOTICE THAT THE ERA OF IMPUNITY IS OVER!

YOU HAVE JUST BEEN WARNED![/size]