Naira Hits N1,400/$: Why FG Should Retire Floating Of Naira-Expert
By Ndubuisi Ekwekwe
LAGOS JANUARY 25TH (NEWSRANGERS)-One of the worst economic policies in Nigeria since 1999 is the current floating of the Naira. That decision has a score of “F” from me, because despite what any person could tell you, from the IMF to the Central Bank of Nigeria, economics is “science” played by the people. And science operates on principles.
In the natural philosophy domains like engineering, those principles are self-evident: you cannot throw a beam during construction without supporting systems. In social science like economics, you cannot float a currency without FIRST ensuring that you can create parity on demand and supply.
Yes, if demand continues to rise for US dollars in Nigeria and you have no means to improve the Supply of US dollars, you have disarmed the Naira, because market forces will weaken its positioning. This is economics 101; every WAEC Economics textbook always begins with Prof Lord Robbins definition of economics where he posited on the relationship between the “end and scarce means”.
Today, Naira is hitting above N1,400/$: “Naira on Thursday fell to a record low of N1,410 per dollar following strong demand on the parallel market, also known as the black market. This represents 3.29% or N45.00 weaker than N1,365 recorded at the close of trading on Wednesday.” Where is the N600/$ stable state?
Nigeria needs to remove the float. What we were doing was just fine if we can attack the corruption in the policy over discarding the whole system. If Mr. Wazobia wants to import Equipment A from Germany, let him source his USD funds. And if you want to assist, offer a rebate on the official and black market rates. By offering a rebate, over the old system, you would be sure the equipment would be imported.
I call on the Nigerian government to focus on policies which will create more US dollars by deepening our industrialization policy. But to think that we can float Naira and it can stabilize over time by pure financial engineering is an illusion. AO Lawal would have graded any suggestion “P8”. Factories, warehouses, etc for physical, digital and services will strengthen Naira, and nothing more, and Nigeria needs to get into that.
Good People, Nigeria must FLOAT industries (yes, companies) to get Naira to fight globally! And here floating companies mean starting enterprises across industrial sectors and growing them to the point they become public companies because they have become super successful.
In the past, we credited people cheap US Dollars, and they could divert the funds to other things. If we change to a rebate system, we would remove that loophole as before payment, we would reconcile data from customs, banks and the company, making sure cheap US dollars were going to PRODUCTIVE things over expanding mindless consumerism.
People, get me right; I am not a political person. I have been consistent with this position for months. I hope I am wrong. But from basic economics, removing frictions to attain market transaction equilibrium faster does not mean price can radically improve if Demand and Supply positions remain misaligned. That is fundamental and cannot be disintermediated as if 90 people each wants to buy $100 with Naira, and you have only two people selling each $100 for Naira, whether you use mobile app, bank hall, bureau de change, etc, the price of Naira will go up, because there is no parity between demand and supply here.
This is the summary: if 90 people each wants to buy $100 with Naira, and you have only two people selling each $100 for Naira, whether you use mobile app, bank hall, bureau de change, etc, the price of Naira will go up, because there is no parity between demand and supply here. The impact is clear: lack of stability in the exchange rate makes making long-term investments impossible, pushing the nation into a trading and rent-seeking ground.
The government can ideally do this floating later once it gets a good picture on how to have access to USD dollars via any means possible that excludes borrowing! The unstable state of the Naira is more dangerous to the economy than mismatch on pricing between official and black market currency rates which ironically the Naira floating did not close, making the core reason for the floating largely unrealized.
Tekedia.com
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Posted by News Rangers
on Jan 26 2024. Filed under Business, National.
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