The Demise Of Naira – Foundation Built On Shifting Sand
“… Likened unto a foolish man, which built his house upon the sand: And the rain descended, and the floods came, and the winds blew, and beat upon that house; and it fell: and great was the fall of it.”-Matthew 7:27
By now we all know the story of naira, the value is collapsing and its malleability threaten the dwindling Nigeria's economy. To be candid, there is no need to beat around the bush; the whole truth is that the future of naira as a principally medium of exchange is very bleak, if not in doubt.
The implication is not that Nigeria's reserve bank will abandon naira as an operating currency and come up with another currency with a new nomenclature and different denominations. Not in affirmative, the mechanics of operation of a prevailing currency is its acceptability. As the participating marketers in a base monetary market losses interest in a given currency, then its function as an instrument for business transaction will be dramatically diminished. This episode will open door to the introduction of foreign currencies in a local transactions.
In this case, international currencies specifically dollars and pounds will displaced local naira in trading, commercialization and transaction on consumer market level. This scenario has already started happening with naira. Nigerians are now more interested in dollars than in naira. Even using dollar as an indicator to measure and deduce the price and value of a commodity in the supposedly naira dominated sphere. This implies that dollars and pounds are acting as a' gold reserve' for naira.
IMF and international financial bodies have eclipsed Nigerian policy makers in regulation of naira without signing any official or binding document to do so.. Never minding Nigeria refusal to officially devalue naira as instructed by IMf, the devaluation is already taken place without the clueless and un- sophisticated Nigerian government being aware. The true value of naira is at the second tier market where is above 350 to US dollar and maybe be acceralating to 500 in nearest future.
Nigeria has finally loses the power and control over the value of naira. Nigeria has handed the power to control naira to a foreigner occupiers namely dollars, pounds, yens etc by default and poor management without not being aware. The policy makers have no more control over naira because the monetary tools at their disposal have waned and lost its functionality.
The tightened of monetary tools with application of complementary monetary and fiscal policies cannot cut the deal because the environment is not conducive for the policies to bear fruits.
First and foremost the aggressive speculators have smell weakness and are having a field day with porous bulwark around naira terrain. The falling price of oil is the new normal and nosedive of the demand has triggered over supply and oil glut. As a result of this, the country's foreign reserve is not replenishing but continues to diminish. The dependence on oil as major of exchange has destroyed naira and buttressed the inefficiency and paucity of financial wisdom among the country's leadership..
Now the party is over in Nigeria, the enormous revenue generated by oil export was not invested in the country. With dilapidated and scanty infrastructures, poor roads, inadequate electricity and dirty drinking water the country's economic future is bleak.
The anemic GDP growth of less than 3 percent and with dwindling foreign reserve at $28 billion and untrained workforce do not spell like a serious nation that is ready for the daunting challenges of 21st century. The country economic and financial indices are whipping up the rapid decline of naira. With interest rate at 11percent, inflation rate @9.6 percent the naira with limited war chest to vend-off speculators is suffering because Nigeria has few products to export for generation of sizeable foreign exchange.
Nigeria built her naira and economy on a soft soil, shifting sand and without foundation. Ultimately with permeating corruption, instability, miscalculation of priority and mediocrity it has commenced to manifest in the lethargy of the economy that has threaten the survival of naira.
***Emeka Chiakwelu, Principal Policy Strategist at AFRIPOL. His works have appeared in Wall Street Journal, Huffington Post, Forbes and many other important journals around the world. His writings have also been cited in many economic books, publications and many institutions of higher learning including tagteam Harvard Education.