₦airaland Forum

https://www.nairaland.com/8625133/central-bank-stopped-naira-appreciating


This is a fat lie. It sounds to me that our leaders are completely ignorant of many things.......


First, understand something clearly: liquidity management is not the same thing as exchange rate management.


What was written sounds intelligent, but it mixes up concepts.

Now let’s counter it point by point.

“CBN must mop up excess liquidity to avoid inflation.”
Yes, in theory.

But inflation in Nigeria over the last few years has NOT been primarily liquidity driven.


Nigeria’s inflation has been:
Cost push inflation,
Exchange rate pass through inflation,
Structural supply side inflation.


Food inflation above 30 percent was not caused by too much naira in circulation.


It was caused by insecurity in farming regions, FX depreciation, transport cost, and import dependence.
Even when CBN aggressively mopped up liquidity using:
CRR debits,
OMO bills,
High MPR,
inflation still kept rising.
Why?

Because inflation was structural, not demand pull.

Mopping liquidity in a supply constrained economy reduces growth, not inflation.


“If CBN allowed excess dollars, people would hoard and resell later.”


This argument contradicts basic FX market behavior.
Hoarding happens when:
People expect future depreciation,

There is low confidence in policy,
There is policy inconsistency.

If market participants believe the currency will stabilize or appreciate sustainably, hoarding reduces naturally.

You don’t fight hoarding with artificial scarcity. You fight it with credibility, transparency, and adequate supply.

Countries like Egypt tried aggressive FX restriction. Result? Parallel market exploded.

Argentina used capital controls repeatedly.

Result? Multiple exchange rates, black market premium above 100 percent.


Artificial scarcity does not create stability. It creates arbitrage.


“Dollar would fall briefly then rise because of speculation.”


Speculation thrives where there is:
Information asymmetry,
Policy opacity,
Supply rationing.


When a central bank operates a clear, rules based, market reflective FX framework, speculative attacks reduce.


Look at Ghana during its recent stabilization program with IMF backing.

Once policy became credible and supply transparent, the cedi stabilized after initial volatility.


You stabilize expectations, not choke liquidity blindly.


“Failure to mop up liquidity caused past problems.”


This is historically inaccurate.

Nigeria’s 2020 to 2023 FX crisis was driven largely by:
Monetized fiscal deficits through Ways and Means,
Oil production shortfalls,
Multiple exchange rate windows,
FX backlog,
Capital flight,
Confidence collapse.


The problem was not just “too much money in circulation.” It was fiscal dominance and FX mismanagement.


Liquidity tightening without fiscal discipline is like tightening tap water while the tank is leaking.

Stronger local currency does not come from scarcity engineering.

A strong currency is driven by:
Productivity,
Export capacity,
Capital inflows,
Policy credibility,
Trade balance strength.


You cannot OMO your way into a strong currency.


If liquidity mop up alone strengthened currency, Argentina would have been stable long ago.


Excessive tightening harms growth.
When CBN aggressively sterilizes liquidity:
Lending rates spike,
Private sector credit contracts,
SMEs collapse,
GDP slows.


And ironically, when growth slows and production falls, inflation can worsen due to reduced supply.


That is textbook stagflation risk.
Stability is about equilibrium, not suppression.


There is a difference between:
Market clearing rate,
Artificially defended rate.
When central banks defend unsustainable rates, they burn reserves and create distortions.


When they allow transparent price discovery with credible supply management, volatility reduces organically.
Conclusion.


The statement oversimplifies a complex macroeconomic reality.
Liquidity control is one tool.

It is not a silver bullet.
Nigeria’s inflation and FX instability were largely structural, fiscal, and confidence driven, not merely liquidity overflow.


You do not create a strong currency by squeezing money supply alone. You create it by fixing productivity, governance, fiscal discipline, and FX transparency.




Kiss the deeper truth.

Why do you lots just like to be arguing blindly just because you are in the opposition camp

You want to move a rate from N1300-N1400 suddenly to N1,000 without causing speculation which could lead to instability?

Those who purchased items from abroad with dollar rate of N1300, at what rate dollar do you expect them to sell the same items when dollar already crashed suddenly?

You guys in the opposition should stop this blind arguments about issue

helinues:
Why do you lots just like to be arguing blindly just because you are in the opposition camp

You want to move a rate from N1300-N1400 suddenly to N1,000 without causing speculation which could lead to instability?

Those who purchased items from abroad with dollar rate of N1300, at what rate dollar do you expect them to sell the same items when dollar already crashed suddenly?

You guys in the opposition should stop this blind arguments about issue

I'm very certain you didn't understand a thing I wrote up there.

Go back and read it and then come back to comment

Sunnyshinylight:
I'm very certain you didn't understand a thing I wrote up there.

Go back and read it and then come back to comment

Do you want to disgrace yourself? I countered your arguments with facts, stop deflecting

I need intelligent discussions not motor pack arguments please. Go look for your level, I am off limits.