STATE OF THE NAIRA
Wednesday, November 09 , 2011
In apparent response to the continued fluctuation in the value of the Naira against major international currencies, the Central Bank of Nigeria (CBN) has indicated that it will devalue the national currency by pegging the official exchange rate to N156 to one US dollar as against the subsisting rate of N150 to the dollar.
The CBN Governor, Malam Sanusi Lamido Sanusi, who dropped the hint in Abuja during the commemoration of 50 years of capital market regulation in Nigeria, explained that the move is essentially to protect investors from losing money in exchange rate fluctuations.
According to him, 'the primary responsibility of the CBN is price stability; we don't really provide growth, but we provide the environment where investors feel safe to invest.'
It will be recalled that the value of the naira to other currencies has greatly depreciated in recent times owing to worsening global economic conditions and increasing demand for the dollar by importers and market speculators.
Whatever the envisaged gains of the new policy aimed at reducing the value of the naira, we believe that toeing such line now is not the best response to the ever increasing depreciation of the value of the naira. To us, the action is not proper and will in the end not help shore up the value of the national currency.
Therefore, devaluation of the naira is not what the nation's economy requires at this point in time. That the CBN is moving the exchange rate band is an indication that the market has failed in determining the actual exchange rate of the naira. The situation is so because the regulator has failed in its monitoring of the exchange market.
We do not think that the CBN is doing well enough in this regard. Ordinarily, government must always have a reference exchange rate as obtains in all market-driven economies.
Instead of fixing the value of the naira arbitrarily, the CBN should ensure that round tripping is minimized. It is not in doubt that the current free fall of the value of the naira to other currencies cannot be divorced from round tripping, which is tacitly encouraged by unscrupulous staff of the apex bank in connivance with some of the banks that bid for the dollar. This ubiquitous clique can at times create artificial scarcity of the dollar and later smile to the banks with mouth-watering profits. If the CBN can adequately monitor the exchange rate transactions, we might be spared of the current crisis over the exchange rate of the naira.
In a monolithic economy like ours, this type of crisis should be expected because what we earn from crude oil export alone cannot be enough to sustain our appetite for foreign currencies. The country is so import-dependent that virtually all our needs are imported including those items that we have local capacity to produce.
Let us diversify the economy so that we can increase our export capacity as well as increase the supply chain of the dollar. Therefore, shifting the value of the naira at will, outside the market forces of demand and supply, will not solve the problem. Continuing shifting of the exchange rate without concrete steps to maximize our exports will amount to nothing. If the value of the naira is shifted today, there is every likelihood that it will still be shifted again in two years time or thereabout.
Government should start treating the disease instead of its symptoms, which the current exercise appears to be. For a stable exchange rate, Nigeria should diversify its economy, create wealth and possibly bring in foreign investors.
Depending on crude oil alone will not solve our economic problems. As long as we continue to depend heavily on imports, so will the value of the naira continue to fluctuate.
Besides, the fundamentals of the Nigerian economy are weak and cannot carry our taste for foreign goods. Let us go back to 'love made-in-Nigeria goods' campaign as a way to rejig our comatose economy and get our people to work. That is the best way to increase the value of the naira instead of shifting the exchange rate. Let Nigerians produce wealth and reduce drastically the over-dependence on imported products.