By Victor Ogiemwonyi

Last week a United States Dollar was finally exchanged for N1000. Most people who spoke to me last week seemed understandably scared; fearing a currency crisis. I have always been a long-term advocate of letting the Naira find its value in the market and I have not changed my mind. There are all sorts of problems with allowing market forces to work to find the true value of the Naira but we have to get to a point where the cost of buying

Dollars will change our economy for good. That is how the laws of economics work. lt will be worse before it gets better.

We are at that critical point now. To be able to harness the gains, we must stay the steady course. As regards the forex debate since the new unification policy was put in place, I had stated that the challenge was to maintain policy consistency and that is what I am still reiterating. The only thing we have to fear is fear, as President Franklin Roosevelt once said. If the Central Bank of Nigeria gets into panic mode and does anything other than let the Naira find its value, we will get into a bigger currency crisis that will do even more harm.

We should not worry about what the Naira exchanges for, even at N1,500 to $1. We should worry more about what it can purchase locally. To provide a context, the South Korean currency, the “WON” exchanges for 1,320KRW to $1 as I write. Why should you expect the WON to exchange for that much, despite all its industries, productivity and strong GDP and with a population much less than Nigeria? Yet we are expecting Nigeria’s non-productive economy to exchange its Naira for less. It is irrational to expect our currency to outperform our economy.

On August 15, 1971, President Richard Nixon of the United States severed the link between the US currency, the Dollar and gold. In effect, he declared that the Dollar would no longer be backed by its gold reserves but by the American economy, which he claimed was stronger than any other economy in the world. It was a gamble, but it worked. More than 50 years later, the Dollar is the dominant currency in the world and has nothing backing it, but the American economy.

Let the Nigerian economy back the Naira even though I am not saying we have a strong economy now. But we will have to grow it because the potential is there. We are currently the largest economy in Africa. China was poorer than us relatively, given their population in 1970. Therefore, we should work towards an economically driven Naira.

It will be painful for five years because we left it too late. All the defending of the Naira the CBN had done with our Dollar reserves in the last 10 years amounted to waste. It is never too late to be right. If we pursue this policy diligently, we will forever be off the yo-yo rate fluctuations the Naira is currently experiencing.

The artificial lifestyle of consuming foreign goods when we are not productive and we do not export much must gradually change. We must allow importation to moderate itself. The higher demand for forex will eventually weaken when we are unable to afford some of the things we buy with forex now. We are spending money to educate our children abroad: spending what we can use to improve our own educational institutions locally. We have neglected investment in our health care. When some of the privileged people cannot go to the US or the United Kingdom, they choose the cheaper option of India. We spend billions of dollars every year to import petroleum products because we choose to neglect our refineries at home. If we want any development here, we must focus on developing our local industries. The irony is that those who benefit from the little forex reserves we generate represent a very tiny percentage of the population.

Any industry that cannot find alternatives, for most of its raw material here, is not ideal for our economy. The only known efficient allocator of resources is price. Let higher prices determine which industries get forex. Anyone or entity paying anything outside of the market price for forex is being subsidised, and we have come to know that is not good for any economy, especially when we become dependent on it. As importation gradually goes down, local manufacturing will take up the gap and even the replacement that may be inferior now will eventually improve in quality, and competition with other local manufacturers will bring about better quality goods.

Higher local currency receipts as we exchange dollars for Naira will also make more money available to the state and local governments to share, thereby redistributing the new Naira wealth to areas where development will be nearer to the people. We have already seen this happen in the last few months.

The policymaking and reforms to get the Naira stabilised must start by creating an enabling economic environment. Inconsistent policymaking must stop. Regulators in every aspect of our economy must be made to understand that their role is that of enablement for the area they regulate, not to constantly police areas outside their command. We need a double-digit growth rate for the next 10 years. This is the only way to reduce the current massive unemployment and create wealth that will lift our people out of poverty.

We already have all the positive factor inputs to enable this: fertile land for agriculture, a large population for a self-sustaining market to support whatever our industries produce and a large literate labour market that can easily be skilled up. We must also address the soft issues of heavy investment into education, healthcare and the present challenge of security. We must fight corruption head-on.

The fact that the black market has now gained over N200 premium to the official rate at the I&E window, at the Financial Markets Dealers Quotations, since the alignment with the black market rate in July, tells me the market in that window is not an efficient allocator. The CBN should impose N200 premium on any price determined at the I&E window daily until it aligns its price with the black market rate, which the people seem to perceive as the real market. This will be a way to quickly find out the real forex economic users.

The CBN should come to an arrangement with all the deposit money banks to lend it all their current holdings in domiciliary accounts to be used to settle verified backlogs. Something tells me the media-reported backlogs need proper verification. The banks must be incentivised to do this at rates to be agreed upon. The CBN will also accommodate this as forex holdings for the banks. The CBN should allow them to value quarterly balances with the CBN at whatever the current rates are for reporting purposes. The CBN should also guarantee the banks that it will be ready to provide the banks with liquidity to meet depositors’ requests at any time so there is confidence for depositors. Finally, the CBN must find a way to rid the economy of the excess liquidity floating around, which is also the reason for the unquenchable Dollar demand.

Ogiemwonyi, a retired investment banker, writes from Lagos

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