I have never hidden my admiration for the Governor of the Central Bank of Nigeria (CBN), Professor Charles Soludo. From his banking consolidation announcement in 2004 to the recent announcement on the "re-denomination" of the nation's currency, he has proved to be a man who understands the tough choices and decisions that running an economy requires; Soludo has proved again and again a man who can deftly combine the intricacies and not too pleasant allure of criticised "academic" economic theory with a business minded approach to making pragmatic decisions meant to move our dear country forward.
So, is this a right decision? What exactly does this portend? How does this directly affect the populace? The truth be told, there is no "right" or "wrong" policy. Every economic policy has inbuilt in it trade-offs, and the potential for success and/or flip flops. The crucial point of note in any policy is the competence and quality of the executors and the institutional capability to adequately implement the tenets of the proposed policy. If the way and manner the banking consolidation was carried out is anything to go by, I believe Soludo and his team proved their mettle in handling the economic reins of the country: in that wise, I fret not!
Whatever judgment you may wish to put on the new re-denomination policy, throw away your bias and prejudice: The man said re-denomination not revaluation! In essence, we apply our knowledge of simple arithmetic i.e. if you are currently earning N100,000 and you spend it now to buy a car costing N100,000, re-denominations says, you will now be earning N1,000, and that you will be able to buy the same car for N1,000. Let's consider the potential benefits of this new policy from two key points: 1. Inflation Management and 2. Internationalisation of the Naira for the West African/African Currency Market.
Inflation in lay man terms focuses on the prices of goods and services: how prices rise and fall and at what rate these gyrations occur. Re-denominating the naira by taking off 2 zeros, potentially can reduce the rate at which the prices of goods and services in the economy can rise(however, I put a caveat on this claim, if there's poor or inconsistent implementation of supporting policies). One potential benefit is that price movement will most likely be in small decimal prints as opposed to big jumps in "rounding-off" changes e.g. why should the price of a product jump from say N20 to N25 and not steadily to N21 to N22.50k etc. These have been basic anomalies experienced in Nigeria for as long as I can remember. these little sensitivities guide price movement in developed economies and have been a key indicator in managing inflationary trend in most developed economies.
On the issue of Internationalising the Naira, partcularly within West Africa, I believe it's a vision long overdue. I have much been appalled by the lack of clout we stride the West African economic and political landscape. It's long overdue for the Naira to take it's rightful position against the CFA Francs used commonly amongst the francophone West African nations. With a growing Foreign Reserves, which is reportedly about 70-80% of the total Foreign Reserves of West Africa, the Nigerian currency is most suited to be the currency of choice along West Africa. If we don't sit up early enough, we could miss the opportunity to be the currency of choice to be bench marked against in the sub-region. So it makes sense for the country to carry out the re-denomination policy to a successful conclusion, as we wake up from our docile position in running the show not just in West Africa, but across the larger African continent. ascribing some real value to the naira is a significant starting point in a long walk, but a potentially "win" situation for Nigeria.
Inflation in lay man terms focuses on the prices of goods and services: how prices rise and fall and at what rate these gyrations occur. Re-denominating the naira by taking off 2 zeros, potentially can reduce the rate at which the prices of goods and services in the economy can rise(however, I put a caveat on this claim, if there's poor or inconsistent implementation of supporting policies). One potential benefit is that price movement will most likely be in small decimal prints as opposed to big jumps in "rounding-off" changes e.g. why should the price of a product jump from say N20 to N25 and not steadily to N21 to N22.50k etc. These have been basic anomalies experienced in Nigeria for as long as I can remember. these little sensitivities guide price movement in developed economies and have been a key indicator in managing inflationary trend in most developed economies.
On the issue of Internationalising the Naira, partcularly within West Africa, I believe it's a vision long overdue. I have much been appalled by the lack of clout we stride the West African economic and political landscape. It's long overdue for the Naira to take it's rightful position against the CFA Francs used commonly amongst the francophone West African nations. With a growing Foreign Reserves, which is reportedly about 70-80% of the total Foreign Reserves of West Africa, the Nigerian currency is most suited to be the currency of choice along West Africa. If we don't sit up early enough, we could miss the opportunity to be the currency of choice to be bench marked against in the sub-region. So it makes sense for the country to carry out the re-denomination policy to a successful conclusion, as we wake up from our docile position in running the show not just in West Africa, but across the larger African continent. ascribing some real value to the naira is a significant starting point in a long walk, but a potentially "win" situation for Nigeria.
Notwithstanding the various criticisms levelled against Soludo, especially with respect to how the foreign reserves of the country could have been best utilised in the last 3-4 years; my opinion is that the strategy, as I have observed so far has been to put some form of stability and predictability to key economic indicators of the exchange rate and money supply suitable for an open economy (and private sector-led) which we have chosen to operate. The shrewdness in managing the foreign reserves thus far has achieved some level of predictability (ask the formal business sector of the economy, and they'll tell you so) and as accounted for some measure of success we have achieved. If our macroeconomic objectives does change, then clearly our national strategy to managing these reserves will be tweaked accordingly.
Indeed, just like the battered frame of the Nigerian citizen, the story of "Mr. Naira" has been a symbolic reality "Mr Nigerian" has been faced with. so whether you believe in the rationality of the pronouncement by the CBN Governor, it is indeed a great psychological boost to any human being to be told he is at least "near" equal to other human beings. So we have been told that Mr. Naira would be considered as close enough as Uncle Sam's dough come August 2008 (don't ask me why it is not N1 to $1, go and read George Orwell's Animal Farm!)
1 comment:
Good job man...
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