The value of a country’s currency is a measure of the economic strength of that country against other countries. Therefore the primary responsibility of the central bank of a nation, as an arm of government, is to manage the economy of that nation in such a way that the value of that currency is protected from deteriorating. All macro-economic decisions and policies must be geared towards the preservation and enhancement of the value of the country’s currency.
Issuing of the naira and management of the value of the naira are core functions of the Central Bank of Nigeria, CBN. The CBN is expected to deploy sound currency management techniques to protect the value of the naira and ensure that it is a currency in which people have confidence as a good store of value. Some of the key factors that affect the value of a country’s currency include:
Productive activities of the people: This determines the Gross Domestic Product of the nation within a time frame that eventually underscores the ability of the people to consume, save, and invest. A country, like Nigeria, in which majority of her able-bodied and employable citizens are idle cannot be expected to be generating enough income to support the populace.
Fiscal policy of Government: This is the policy of government targeted at affecting the development of the economy by affecting the productive capacity of the people and controlling their consumption, savings and investment. Here is where we talk of how much is allocated to infrastructure development, to functional education and manpower development, to industrialisation, to security of lives and property, and to overhead for keeping the government running. In Nigeria today, more than 70 per cent of the budget goes into overhead and security. Core sectors that can boost production of goods and services are grossly neglected. The economy is financed mainly from the production of crude oil, a natural resource that may dry off one day or meet adverse situation in the international market. Fiscal policy is primarily the function of the Federal Ministry of Finance with inputs from other power centers of the executive arm of government. Fiscal policy is like buying a car and putting oil to get it ready for operation.
Monetary Policy: Monetary policy is targeted at managing the financial sector of the economy. It imparts on the ability of banks to attract deposits from areas of the economy with excess funds and their ability to channel the deposits to areas that need funds. It also controls general demand level of the economy by controlling the volume of money in circulation and its rate of turnover. Money drives the engine of the economy, controls its speed and the direction it faces. Monetary policy is like getting the driver to operate the car put in place by Fiscal Policy.
Foreign Exchange Policy: This is targeted at controlling the financing of cross-border activities. It is the twin-brother of monetary policy. One complements the other. To say the least, our foreign exchange policies and management strategies since 1985 when former military president, Ibrahim Babangida started his structural adjustment programme, SAP, had been suicidal to the nation. All the dislocations we have today had their origin in the ill-conceived and woefully implemented SAP. One Naira that was exchanging for about US$1.50 in 1985 is so bastardised to the level that we now give N162.00 to get US$1.00. They bombed the Naira to shreds.
Consumption pattern and preferences of the people: The economic behaviour of the people of a nation has implications for the currency of that nation. How productive are they? Of the income they generate, how much do they spend, how much do they save, and how much do they invest? Of the amount they spend on consumption, how much do they spend on locally manufactured goods and services and how much do they spend on imported foreign goods and services. In Nigeria today, owing to myriads of factors, we consume more than we produce and we also have preferences for foreign goods and services.
Having said much for the layman to understand how the economy works, it is certain that the responsibility to make the economy work rests with the government. I got a Facebook posting on the blog of Mr. President that the CBN cried out that the “Naira is weak”. My immediate reaction was whom is the Bank crying to? Is it the man on the street like me that will help revaluate the Naira when all the Bank’s actions and plans are aimed at devaluing the Naira?
Last year, the Central Bank came with the Cashless policy, the pilot project of which started in Lagos State early this year and is to spread across the nation later in the year. This was to reduce the abuse of the Naira, reduce cost of currency replacement, and check money laundering activities of corrupt Nigerians.
Just as we are trying to key into that policy, the Central Bank came up with the idea of introducing N5000 note and the conversion of N5, N10, and N20 into coins. Nigerians are not in love with coins. If the policy is allowed, it means that a sachet of pure water that now sells for N5 or N10 may, within a short time, go up to N50, which will be the smallest Naira note in circulation. Apart from this, what do we expect the psychology of a man on minimum wage of N18, 000 to be if at the end of the month, he just receives three notes of N5000 and three notes of N1000? Definitely he will feel humiliated and demeaned. In the private sector, we still have people that earn less than N10,000.00 as salary.
Once upon a time, the highest currency note in Nigeria was N20. Then came N50 and N100. Later we had N200 and N500. We again moved to N1000 that is presently the highest currency note in the country. What good has the introduction of higher currency notes in the past done to the economy and the people? It has fueled inflation, enhanced corruption and money laundering, weakened the Naira, and impoverished the people. Introduction of N5000 note at this time that the economy is comatose will run the nation bankrupt. Government officials will become more daring in stealing from government coffers. Bank robbery and pick-pocketing will increase. Bastardisation of the Naira at social functions will become worse as crazy elites will begin to spray N5000 at social ceremonies. In short, the economy will tear into pieces beyond remedy.
In my candid opinion, this government is at a loss on how to manage the affairs of the nation. The ministry of finance, headed by a World Bank big wig, is more than confused. Theories have failed them. The Central Bank of Nigeria is more confused and disoriented. Nothing underscores the level of the institution’s confusion more than the opposing policies of cashless economy and the currency restructuring. You are rejoicing at the delivery of a baby while at the same time poisoning the baby!
We should not deceive ourselves. The economy may hit the rocks faster than we expect. Unemployment is so high that we have exported it to neighbouring countries. Ghana is already rejecting our people. South Africa is molesting us. Those who left Nigeria to seek greener pastures are roaming the streets in the countries that are not in the first place willing to host them. How to manage the economy to restore the dignity of Nigerians should be the pre-occupation of our economic managers – the Federal Ministry of Finance and the Central Bank of Nigeria - not currency restructuring that will worsen the lots of the people.
The economy is in a situation enough for government to declare a state of emergency. Throwing of flamboyant and extravagant parties should be put on hold or heavily taxed. You need to see how our elite flaunt their wealth at weddings, burial ceremonies, chieftaincy and/or coronation occasions while multitudes are begging for alms in order to feed once a day. Families that have more than three private cars should be specially taxed. Any elite that leaves the shores of the country to have his social function should be heavily taxed on return. Imagine a family in the news recently, who had the traditional wedding of their son in Nigeria, ‘exported’ 300 elites to London (return tickets paid, hotels reserved) for the wedding proper and had it in plan to still return to Nigeria for another bash of the same wedding! This is an arrogant display of wealth. And this is why corruption can never stop because of elites’ competition for frivolities and emptiness of the world.
I call on all Nigerians to stand up en-masse against the CBN new currency policy. We do not have any other country to call ours. The era of siddon-look is over. Any nonchalant attitude on our part when government is taking us to economic and political gallows is tantamount to self-destruction. Babangida and those who ruled after him collectively and severally spoilt the nation’s economy but today they are living in opulence while the masses are suffering.
(Adebanjo, a professional banker, is based in Lagos.)
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