It is
general knowledge that the CBN has not been managing public sector dollar
receipts (the bulk of total supply of forex) the way foreign central banks
treated forex supply with an eye to defending the value of their national
currencies. Why then do the Senate and CBN pretend that CBN naira exchange rate
not arrived at through international best practice could measure up to major
foreign currencies and command public confidence? To be sure, the
Presidency-dictated inappropriate handling of Federation Account (FA) dollar
accruals substitutes CBN deficit financing of government budgetary spending in
place of FA dollar allocations, bloats money supply in the process, causes
systemic naira depreciation and periodic devaluation thereby fuelling
exaggerated demand for forex to hold and for speculation, among other adverse
effects.
The CBN’s
explanations for the dwindling naira and the poor state of the economy inflict
shame on the country. Firstly, the apex bank adduced the normalization of
monetary policy by the U.S. Federal Reserve as a reason for the fall in the
value of the naira. The Fed action is in the national interest of the U.S. and
represents the norm from which may be transient aberrations. In effect, the CBN
let it be known to the Senate and the Nigerian people that the naira and the
Nigerian economy are doomed for good.
Secondly,
when CBN sells withheld FA forex under the pretext of defending the value of
the naira, the forex is not channeled like focused central banks do, exclusively
to procure the country’s import needs in order to strengthen the economy.
Instead, much of the forex is wasted partly on mopping-up excess liquidity
brought about in the first place by the wrongfully substituted CBN deficit
financing of government expenditure thereby piling up the national domestic
debt, partly on shelling out forex to speculators operating bureaux-de change
(BDCs) and partly on taking additional amounts out of the system for outright
destruction.
Thirdly, the
falling oil prices led to lowered inflation in oil-importing industrial
countries, but the reverse obtains here owing to the faulty handling of FA
forex. Similarly, with legislated budgetary borrowing routinely falling within
three per cent of GDP, under best practice exchange rate fixing system,
Nigeria’s inflation rate would crash below three per cent and domestic bank
credit would be accessible at internationally competitive rates thereby
boosting investments.
In contrast,
the CBN has fixed the so-called tolerance inflation range of 6-9 per cent,
which is the repercussion of the withholding of FA dollars and the attendant
artificial exchange rates. Consequently, the economy is saddled with a
restrictive monetary policy stance that renders bank lending rates
unattractively high, impedes private sector investments and fosters mass
unemployment.
For the sake
of putting an end to the numerous economic difficulties arising from the faulty
withholding of FA dollar accruals, the best thing is for beneficiaries to
collect dollar allocations which, however, should be retained in their
respective CBN accounts in order to prevent abuse. Simultaneously, FA
beneficiary CBN forex holdings should be reflected in a dummy dollar account
(DDA) opened with deposit money banks. (The DDA is different from standard
domiciliary dollar account with cashable dollar holdings.) At the request of
DDA holders, DMBs transact in the forex market and convert any portion of forex
requested to naira revenue. The TSA rule should be applicable to the converted
naira revenue. By the DDA procedure, the economy’s total forex supply and total
demand will become properly subject to DMB intermediation at the primary stage.
Needless to
state, government fiscal responsibility includes passing legislation specifying
the country’s import needs and employing discriminatory tariffs primarily as a
means of promoting domestic production and moderating demand for foreign
exchange. The unwavering objective is to keep the national currency
intrinsically strong by ensuring that the Nigerian economy lives within its
means literally and metaphorically. Accordingly, it is imperative that eligible
demand for forex be based on a carefully chosen basket of items that may be
imported to complement what is available or should be produced domestically
with an eye to erecting a strong economy. Imports that fall outside the
specified basket (however they may be financed) undermine the national economic
objective and so should be discouraged by rendering them unprofitable via
clamping down on them with multiple import levies. In this connection, revenue
generation is incidental to the duties of the Board of Customs and Excise whose
proper function is to enforce cast-iron protection of domestic industries.
Legislation constituting the basket of imports should explicitly prevent
whimsical granting of tariff waivers by the executive arm of government.
An adjunct
objective of the permissible import basket is to engineer forex demand to be
less than supply to facilitate steady build-up of external reserves. The
constitutional exclusive list of functions vests ownership of external reserves
on the Federal Government. A portion of the external reserves may be
appropriated via the legislature from time to time as FG internally generated
forex revenue thereby not only foreclosing external borrowing but also
providing the wherewithal to take care of federal forex obligations.
By not
pandering to any vested interests, it is actually so easy to place the domestic
currency firmly beyond speculative attacks and to actualize Nigeria’s
self-financed economic recovery, rapid growth and fast development. (Guardian)
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