A few days to the just concluded general elections, the then All Progressives Congress (APC) presidential candidate Major General Muhammadu Buhari (retired) made a solemn promise that if the Nigerian people voted him into office, he would ensure that one (1) Nigerian Naira would be equal to one (1) United States Dollar.
This is not rumour or “beer parlour jist” because it was duly reported by the reputable News Agency of Nigeria (NAN) as the accurate account of part of the General’s speech at a campaign event that held precisely on Monday 23rd March 2015, at the Dan Anyiam Stadium Owerri, Imo State.
Recently, some leading APC officials have been trying to distance General Buhari, now our newly “minted” President-elect (pun intended), from the above referred statement, claiming that what General Buhari meant was that the value of the Naira would improve greatly or considerably during his tenure.
One does not know whether our highly esteemed President-elect consulted widely before he made the pledge. However, given his reputation for saying only what he means, one may guess that the General meant and means what he said.
The purpose of this piece is to urge the President-elect not to review his sacred campaign pledge because THERE IS a mechanism that will enable the Nigerian Naira to achieve parity with United States (US) Dollar, that is 1 Naira would be equal to 1 US$. Yes, US$ 1.00/ =N= 1.00.
It is not voodoo economics. It will happen by the instrumentality of a process called currency redenomination. Basically, redenomination involves the adjustment of a currency to remedy the adverse effect of inflation and currency devaluation.
With an estimated nominal inflation rate of 8.5% and an exchange rate of about =N= 200.00 to US$ 1.00, Nigeria is certainly ripe for currency redenomination.
So, in order for President-elect Buhari to keep his campaign promise, the Naira would likely have to undergo redenomination. For the purpose of illustration, let us assume that US$ 1.00 currently exchanges for =N= 200.00 in the most credible market, that is the parallel market.
Therefore, it means all units (i.e. bank notes and coins) of existing Naira currency (i.e. the “Old Naira”) would be replaced with units of the redenominated Naira (i.e the “New Naira”) bank notes and coins that would be issued (i.e. printed and/or minted) anew, presumably by the Central Bank of Nigeria (CBN) or the Nigeria Security Printing and Minting Company, as the case may be.
Though, one hopes that any Naira redenomination exercise will be personally supervised by a credible, independent Task Force since the reputation of the current CBN Governor, Mr. Godwin Emefiele, has been greatly damaged by his recent suggestion that Nigeria’s crown jewels (i.e. equity holdings in the crude oil producing joint venture entities) be sold for cash.
I PRAY THAT PRESIDENT-ELECT BUHARI DOES NOT FALL INTO THIS TRAP!!! Anyway, CBN Governor Emefiele’s scandalous recommendation for sale of Nigeria’s invaluable crude oil equity stakes is a matter for another day.
Now let us return to the issue of Naira redenomination. Based on our hypothetical scenario above, all existing units of Old Naira notes and coins would be exchanged for New Naira notes and coins at the rate of 200.00 Old Naira for 1.00 New Naira. That means at the end of the exercise, 1.00 Nigerian Naira would be equivalent to 1.00 United States Dollar.
However, it should be stated that the New Naira will retain the same value (i.e. purchasing power) as the Old Naira. What occurs is merely a re-calibration of key factors in such a way that, if properly managed subsequently, will enable the monetary authorities maintain a favourable and sustainable exchange rate, interest rate and inflation rate.
However, going forward, the Central Bank of Nigeria (CBN) should be more responsible in the management of the monetary policy. For instance, the CBN’s harebrained policy of monetising the monthly, statutory foreign exchange allocations due to the various tiers of government, distorts our macroeconomy on so many levels.
It creates excess liquidity by flooding the money market in one fell swoop with a surfeit of Nigerian Naira that now turns around to shop, sometimes inordinately, for foreign exchange, goods and services, etc, thereby worsening the exchange rate and inflation rate at the same time.
It also creates the bizarre situation of so-called ballooning “foreign exchange reserves” of the Nigerian Federation whereas what we are actually referring to is the foreign exchange holdings of the Central Bank of Nigeria, i.e. the countervalue of the cumulative Naira transfers to the various federating units over time.
Hence the absurdity of Federal Government continuing to borrow, even in the face of so-called robust “foreign exhange reserves” in the sum of tens of billions of dollars.
A more realistic approach of monetising foreign exchange allocations to the federating entities would probably be to disburse foreign exchange vouchers to the respective beneficiaries which could be redeemed for Naira as and when needed.
Futhermore, the above referred modus would, over time, ensure that both the interest rate and inflation rate fall to the desired single digit. This singular reform would go a long way to revert the economy to equilibrium.
Without a monetary policy focus that sets the foregoing as its objective, the Buhari Administration, like its many predecessors, will find its economic reform agenda inchoate and ineffective.
Finally, I would like to end by making the case for an outstanding public servant who, though she had recorded giant strides in a previous service, had been relegated to the background until very recently.
Enter Mrs. Ifueko Marina Omoigui-Okauru, the first female Executive Chairman of Nigeria’s Federal Inland Revenue Service from 2004 to 2012, the first female Chairman of Nigeria’s Joint Tax Board and member of the President’s Economic Management Team until the expiration of her tenure. For uninformed readers, Mrs. Omoigui-Okauru’s sterling Executive Profile is available on <www.bloomberg.com>
With a reputation for incorruptibility, I believe President-elect Muhammadu Buhari will need the counsel of a strong-willed technocrat like Mrs. Omoigui-Okauru, possibly as Finance Minister, to counter the half-baked and dubious counsel that the likes of Central Bank of Nigeria Governor Godwin Emefiele will be inundating the incoming Administration with.
Written by Dr. Kolawole Kayode.