We may be witnessing the sheer arrogance that characterized the Obasanjo years in Soludo’s solitary redenomination. The political drama that continues to unfold after his policy prescription, the “Strategic Agenda for the Naira, “may be another recklessness, and arrogance that is common with Nigerian public office holders. Some have mentioned that Yar Adua might not have been privy to the new policy, but I beg to differ.

Yes, there are different interpretations of the objectives of this new policy. For me, the process reveals the dubious machinations of people in power, although many perceptive observers continue to see it in different ways. For some, it is a confirmation of the intellectual depth of Soludo, and this speaks to his foresight in their books. For others, it is the confirmation of the abilities within our ethnic North and South dichotomies, a position that stereotypes Yar Aduas’s ethnic stock.

But whatever interpretation, we have a new policy under the watch of Yar Adua presidency that lacks legitimacy. Assuming Yar Adua has power, this policy couldn’t have been imposed on the public without his tacit approval. It is also almost impossible for Soludo to have run to town without consulting with his boss, or thinking about the loss of his job if he embarks on a policy that has no support of his boss.

If he solicited the support of his boss, we might be witnessing a concert of economic pianists, whose membership has national spread, irrespective of ethnic region. The product of their symphony is without the participation of Nigerians. The continuation of the abortion of the people’s wills in a democracy, the act that sets aside much needed consultation and stakeholder participation.

Within this perspective, the process that gave birth to the “Strategic Agenda for the Naira” needs re-evaluation. If it has not involved Nigerians, it is not Nigeria’s agenda since most people have not bought into it. In Soludo’s solitary redenomination, we are witnessing the extinguishing of the rights of citizens in a representative democracy - a process that has abandoned debate of policy for the all knowing policy prescription of a few.

Nigeria’s politics has been fraught with imposition of candidates on the citizens by godfathers and military generals. On the political turf, we have witnessed the rape of people’s will, and within the economic sphere we are witnessing the imposition of the proposal of a few individuals. Without due consultation with members of the public, it is immoral, reckless and arrogant for Soludo, a university intellectual of notable stature, to be involved in a policy that hasn’t been debated and has no citizens backing.

If it was Obasanjo era that came up with a policy without due consultation, it would not have irked this much, the reason being the command structure within the army that groomed him might have fed that mindset, but it raises a question of quality when we believe the political and policy field is dominated by civilians from ivory towers,  a supposed ideas palace that shapes bright minds. Its products and pathfinders should not be caught amongst those displaying this sort of arrogance commonly found amongst politicians of the military breed.

Where exactly is our democracy headed, especially if we continue on a path that makes public officers unaccountable to the members of the public? Do public officers have the monopoly of knowledge?  And are the citizens ignorant to the extent that their say no longer matter in policy decisions?

In Canada, for example, political commentators have debated in the media for the past two weeks the role of an iconic university intellectual, and his judgment, further extending to the effectiveness of his policy prescriptions. At the center is the name Michael Ignatieff, an academician turned politician whose mea culpa in New York Times magazine raised some introspection amongst political observers.

 The failure of this intellectual’s ideas makes for interesting reading solely because he is reputed to have an I.Q that is off the Richter scale - a man well entrenched in the world of academia, respected amongst his peers, and also known for his charm, good looks and big ideas. It is the let down by a theorist of his gargantuan stature that has spurred the debate about the role of public intellectuals in politics and decision making. How far can we trust their judgment?

Big ideas  we were told in  his recent essay in a New York magazine, “ Getting Iraq Wrong,” don’t always result in good outcomes, Michael Ignatieff , a former Harvard professor, and one of the most important human right scholars in the world . His admission that, “in political life, false ideas can ruin the lives of millions and useless ones can waste precious resources,” speaks to Soludo’s solitary redenomination.

But, the issue wasn’t this observation, but rather the comment that, “as a former denizen of Harvard, he had leant that a sense of reality doesn’t always flourish in elite institutions. It is the street virtue par excellence. And that bus drivers can display a shrewder grasp of what’s what than Nobel Prize winners.” It is the momentous revelation that has set public debate in fire in Canada. Looking around us at the Iraq debacle, we see highly cerebral lieutenants of Bush like Rumsfeld become wishy-washy intellectuals, partly because they abridged the rights of American citizens to participate or debate Bush’s policy choices.

Based on the admission of Ignatieff, it makes sense to examine the judgment and the recklessness being exercised by Nigeria’s CBN Governor, Charles Soludo and his other ideas merchants. Afterall, he is the intellectual cum decision maker at the center of this new policy. We know ideas are important, but democracy is important, and more important is the debate of those ideas within our political space. Any idea that is being pushed unilaterally like Soludo’s solitary redenomination should be resisted by the discerning public.

It is no longer news that this policy is causing a storm within policy, and intellectual circles. His “Strategic Agenda for the Naira” has raised a lot of criticism from all the across the stretches of our national landscape. All stakeholders that should have been party to the redenomination of the naira before it was made public were left out. Professor Ayagi, a peer of the Soludo has raised an alarm on the recklessness of the way policies are been made. Many commentators have criticized the policy.

Ayagi says this “is a complex issue that affects the entire livelihood of Nigerians, including the economy, social fabric of the society and everything about the nation, and for someone to just wake up and say with such feeling of finality is ridiculous.” Not a few disagree with this position.

But what is democracy all about, if people cannot debate what affects their future? Is it only about voting on Election Day?  Can few people’s judgment be the decider of a policy for over more than 140 million citizens?

The sheer arrogance that has dominated Obasanjo years is playing out before our very eyes, and in a cavalier way, this might be the current president testing the waters through Soludo’s solitary redenomination. It would be interesting to watch what happens if Yar Adua’s policy trajectories take place along this path.  It can only help diminish his presidency if the public see this sort of tricks characterizing his presidency.

Policies that affect the heart and motion of everyday Nigerians should be debated by everyone that can muster that effort. It should never be the privilege of a few perceived gifted intellectuals, or the president’s kitchen cabinet. If some folks still want to say Yar Adua is not party to this, they can tell that to the birds!

Robot  # 1 | 18.08.2007 15:35

We may be witnessing the sheer arrogance that characterized the Obasanjo years in ...Read the full article.

Akinyi  # 2 | 18.08.2007 20:06

Revaluation means the calculated adjustment to a country's official exchange rate relative to a chosen baseline usually gold but since countries no longer use gold as a baseline, the baseline for revaluation is the dollar hence revaluation means the same as dollarization. What the CBN is about to do is fix exchange rate , a decision only a country's government -central bank can make. For example, suppose a government has set 20 units of its currency equal to one U.S. dollar. To revalue, the government might change the rate to 10 units per dollar. This would result in Naira being twice as expensive to people buying it with U.S. dollars than previously and the U.S. dollar costing half as much to those buying it with foreign currency. So, simply put, revaluation or redenomination or currency reform or dollarization is just an increase in the value of a currency in relation to others. Meanwhile, what this means is –that Nigerian government wants to give “artificial value” to the Naira. Nigeria could succeed if and only if we have enough foreign exchange to back up the Naira. In other words, your government wants to subsidize the dollar. Can Nigeria subsidize the dollar? There lies the problem. You all know Nigeria's tortured history in subsidizing oil. Most western countries operate a floating exchange rate—this means that the value of their currencies are determined by SUPPLY and DEMAND. It means that a country’s currency will find its own level automatically. In a fixed exchange rate which CBN wants to adopt, the Naira cannot find its level. A good economist will tell you that the ONLY way to put value on your currency is to INCREASE production of goods and services. That is the only way. Anything else is cosmetic dressing of larger economic problem. That the Naira will suddenly strengthen from 125 to 1 Naira to $1.25 thereby halting or reducing hyperinflation from 5000% to 50% is same as shifting two zeroes in 5000 to achieve an artificial 50%. It does not make sense. At the moment, the main production in Nigeria is OIL. Unfortunately, we do not determine oil prices. Foreign investment will decrease or dry up because Naira will now be too expensive. Even Nigerians living in Diaspora will find no interest in investing in Nigeria. Nigerians abroad infuse well over $10B in Nigeria’s economy. And by the way, IMF charter frowns at policymakers manipulating exchange rates to gain undue advantage.

Zanderlex  # 3 | 18.08.2007 22:20

=Akinyi;200793>Revaluation means the calculated adjustment to a country's official exchange rate relative to a chosen baseline usually gold but since countries no longer use gold as a baseline, the baseline for revaluation is the dollar hence revaluation means the same as dollarization. What the CBN is about to do is fix exchange rate , a decision only a country's government -central bank can make. For example, suppose a government has set 20 units of its currency equal to one U.S. dollar. To revalue, the government might change the rate to 10 units per dollar. This would result in Naira being twice as expensive to people buying it with U.S. dollars than previously and the U.S. dollar costing half as much to those buying it with foreign currency. So, simply put, revaluation or redenomination or currency reform or dollarization is just an increase in the value of a currency in relation to others. Meanwhile, what this means is –that Nigerian government wants to give “artificial value” to the Naira. Nigeria could succeed if and only if we have enough foreign exchange to back up the Naira. In other words, your government wants to subsidize the dollar. Can Nigeria subsidize the dollar? There lies the problem. You all know Nigeria's tortured history in subsidizing oil. Most western countries operate a floating exchange rate—this means that the value of their currencies are determined by SUPPLY and DEMAND. It means that a country’s currency will find its own level automatically. In a fixed exchange rate which CBN wants to adopt, the Naira cannot find its level. A good economist will tell you that the ONLY way to put value on your currency is to INCREASE production of goods and services. That is the only way. Anything else is cosmetic dressing of larger economic problem. That the Naira will suddenly strengthen from 125 to 1 Naira to $1.25 thereby halting or reducing hyperinflation from 5000% to 50% is same as shifting two zeroes in 5000 to achieve an artificial 50%. It does not make sense. At the moment, the main production in Nigeria is OIL. Unfortunately, we do not determine oil prices. Foreign investment will decrease or dry up because Naira will now be too expensive. Even Nigerians living in Diaspora will find no interest in investing in Nigeria. Nigerians abroad infuse well over $10B in Nigeria’s economy. And by the way, IMF charter frowns at policymakers manipulating exchange rates to gain undue advantage. Thank you very much Akinyi. I posed a question on a previous thread quote "I am not an economist about this Naira revaluation thing but my question is this, If we had been there before, that is when $1= #1.25, how did we get to $1=#125.00 and why did we get there?. Have we fixed the problems that led to the drop of the value of the Naira during these years? What was (or is) the singular thing that dragged Naira to the ground in the first place? If somebody can help me with the answers to these questions then I will be in a better position to formulate an opinion and understand the viability of this proposal by Prof Soludo. My understanding so far and I believe that of the common man on the street is that the relationship of the naira to the dollar is determined my market forces and that this is in the best interest of Nigeria because it gives us a realistic idea of our economic strenght" unqote, With your clear explanations Mr Akiniyi, you seem to have addressed my concerns and I can reason logically that this Soludo's new idea for the naira although novel will not help Nigeria and therefore should be discarded.

Akinyi  # 4 | 19.08.2007 01:09

Thank you very much Akinyi. You are welcome I posed a question on a previous thread quote "I am not an economist about this Naira revaluation thing but my question is this, If we had been there before, that is when $1= #1.25, how did we get to $1=#125.00 and why did we get there?. answer--- Because iBB was forced to follow supply and demand mechanics of the Naira Have we fixed the problems that led to the drop of the value of the Naira during these years? answer---NO What was (or is) the singular thing that dragged Naira to the ground in the first place? Answer---Because we were not producing as much as we consumed. if you want a strong currency, you must produce not just oil but other products and services. If somebody can help me with the answers to these questions then I will be in a better position to formulate an opinion and understand the viability of this proposal by Prof Soludo. Now, I am providing you with real answers. My understanding so far and I believe that of the common man on the street is that the relationship of the naira to the dollar is determined by market forces and that this is in the best interest of Nigeria because it gives us a realistic idea of our economic strenght" That is true. It is called the floating rate. With your clear explanations Mr Akiniyi, you seem to have addressed my concerns and I can reason logically that this Soludo's new idea for the naira although novel will not help Nigeria and therefore should be discarded. Answer----That is true.

Zanderlex  # 5 | 19.08.2007 07:29

=Akinyi;200827> What was (or is) the singular thing that dragged Naira to the ground in the first place? Answer---Because we were not producing as much as we consumed. if you want a strong currency, you must produce not just oil but other products and services. Okay Mr Akinyi, from your answer to this question, how then can one explain that the Japanese currency (yen) is weak to the dollar and yet their economy is strong ?. Does it mean that the currency does not in the real sense determine the strenght of the economy using this Japanese example? It will nice if you can enlighten us more on this complicated economics.

ikechiji  # 6 | 19.08.2007 07:51

=Zanderlex;200856>Okay Mr Akinyi, from your answer to this question, how then can one explain that the Japanese currency (yen) is weak to the dollar and yet their economy is strong ?. Does it mean that the currency does not in the real sense determine the strenght of the economy using this Japanese example? It will nice if you can enlighten us more on this complicated economics. The strength of the currency is not determined by how many trailing zeros it has. The strength of the currency is determined by its relative purchasing power, i.e. the yen is not weak compared to the dollar. For example, if your average monthly salary in the US is $1000 and your average monthly salary in Japan is Y100,000 and $1 buys you a loaf of bread in the US and Y100 buys you a loaf of bread in Japan, then the yen is not weak compared to the dollar. The currencies are just calibrated differently, you can think of the yen as a cent. What Soludo has proposed is a re-denomination of the Naira by removing two trailing zeros. It "technically" does not change the value of the Naira. However, there are psychological perception and market forces that could change the value of the Naira after it has been re-calibrated. If for example, people do no change their prices by exactly removing two zeros, we could end up with higher inflation. This has happened in countries such as Italy.

aguabata  # 7 | 19.08.2007 13:42

nigeria has adopted the fixed convertible system before and failed, i cant remeber in soludo's paper saying the exchange rate will be pegged, i will check, i'm happy with the form of analysis and criticism going on, by the way i am for redecimalisation.

Shoko Loko Bangoshe  # 8 | 19.08.2007 16:38

Just to add to what Ikechiji has said about 'strength' and 'weakness' of currencies - this has less to do with the nominal rates at which currencies exchange for other currencies and more to do with the direction in which these rates are heading. In fact, you'll usually hear statements refer to 'weakness' in terms of another currency - for example "the dollar is weak against the pound". What this means is that over the last few days or weeks, the amount of pounds that you can buy with a dollar has been falling. I should say that the strength or weakness of a currency against other currencies is not in itself a bad thing - both (in theory) have their advantages and disadvantages. If your country exports goods, then having a currency that is weak against the currency of the country that your exports are going to is a good thing. For example, let's say that we have an exporter in Kunustan who exports kunu (what else?) to Nigeria. Let's also say that the exchange rate of the Kunustan dollar is K$1 to N100, and a keg of kunu costs K$10. This means that the keg of kunu will cost N1,000. Now let's say that the K$ weakens against the naira (i.e. it can now buy less naira) - let's say it eventually ends up at K$1 to N50. This means that the keg of kunu will now only cost N500, and it means boom time for exporters, since people will now rush to buy their kunu as it is now cheaper. Of course, there's no silver lining without a cloud - even though the exporters are happy at the weakening, importers will be groaning. For example, if a crate of agbalumo produced in Nigeria costs N5,000, then before the weakening, it would have sold for K$50. But after the K$ has weakened, it will now sell for K$100. And this (I suspect) is the reason why historically Nigerians have seen a strong currency as a good thing and a weak currency as a bad thing. Nigeria is heavily dependent on imports - so much so that when the naira weakens, the price of everything goes up. But this doesn't have to be the case if most of our raw materials are sourced locally or if we export enough goods to keep people demanding for our currency to pay for the exports (and thus keep the currency strong).

teebee  # 9 | 23.08.2007 21:05

I would like to make a few comments, contributions and perhaps clarifications on the things that have been posted. The redenomination of the naira as has been emphasized should not change the value in of itself of the currency. Further, it will not strengthen the currency in international markets against any other currencies in real terms (which is what matters) except in the nominal (face) value. The dollar's worth should still remain the same in terms of what it can purchase in naira, the same would hold for the British pound etc. This is because no monetary or otherwise policy per se has been effected by the redenomination and as such consumption and production decisions will not be altered by the redenomination. If changing for instance $100 gives me N125 , then this value in terms of what it can buy both domestically and in international markets should be the same as what N12,500 can buy today. This is because all assets, existing currency and subsequent transactions will be redenominated, and so all prices (in goods, labor, capital, resource) markets would be redenominated as well. So given this, the redenomination in and of itself, holding other factors (which I shall address a few of) constant, does not change the value of the naira. The caveat that follows this highlights some of the other factors which may ordinarily not be constant. First, the primary reason we hold money is as basic economics tells us is because it is a medium of exchange. So when we are looking at policies what should be of interest to us is not the illusion of face value but rather of what the money can purchase, i.e. its real value. Redenomination does not change this unless it is done haphazardly and the adjustment process is slow, manipulated or resisted. This is a factor that may not be constant in Nigeria, as evidently such a change creates room albeit little, for some individuals to make profits through roundtripping in goods and transactions, while uncertainty remains in some quarters and prices are not fully adjusted. In this case we could either have dynamics here that eventually settle us in the new situation, with some winners and some losers; or we could have dynamics that diverge from the goal as people stubbornly refuse to alter their prices out of fear of being the ones who will be taken advantage of. This is where I believe much of the debate should center around - the adjustment process, which to be smooth requires much educating of the masses and a willingness on our part as a whole to make it work, this in turn will reduce opportunities for arbitrage by significantly eliminating information asymmetries. Second, as someone also noted, the announcement has the effect of signaling an illusionary turn around in the economy, the type that is intended to boost public confidence in the economy and which spurs both domestic and foreign investment. This is perhaps a working of modern macroeconomic policy, where 'beliefs' work as self-fulfilling prophecies, and ensure that we have the support policy makers need to subsequently implement monetary policy such as inflation targeting, which Dr. Soludo has mentioned as one of his policy tools. (To understand how a negative form of self fulfilling prophecies work consider bank runs - where it is believed or rumoured that a bank is failing and so stake holders rush to get out their investments and savings, and this ensures that the bank does fail). How much attention has been got by telling people that the dollar would now change for N1.25!! People are beginning to think about investing in Nigeria early so that they can reap the rewards of the "New improved, strong and revamped" economy. Brain drain is being somewhat checked as people are reconsidering checking out and those out are strongly contemplating moving home. But this exchange rate change is strictly nominal, NOT real, both domestically and internationally. Third, any policy that introduces new currency into the economy could in principle be seeking to get an accurate idea of the true supply of money in the economy, especially when existing currency is fraught with counterfeits of the large bills. This is because the influx of such counterfeit will continue to trigger demand pull inflation, but not in the true sense of the word, since only the prices of goods will tend to rise as wages will remain unchanged given the state of organized labor in Nigeria and the incompleteness of wage contracts that tend not to adjust with inflation rates. Having a thorough rein on money supply, policy can be designed to expand or contract the economy. Fourth, redenomination may help make policy formulation a lot easier when working in denominations of comparison that are in the same digit. Fourth, a factor that may not be constant has to do with what is happening in other countries. To make the transition easy by this time next year (or whenever that happens), current monetary policy must be strongly geared toward maintaining existing rates at $1 for N125. If say the dollar appreciates greatly against the naira before and leading up to this time, and attempting to restore the status quo is very costly, then we may be looking at a different adjustment rate next year, if we would just be moving the decimals two place to the left. In any case, that is not a major problem, we would just have the rates at that new redenomination, but it may differ markedly from 1.25, to say 1.5 or whatever. Essentially, redenomination in and of itself does nothing, but we must be careful to ensure that the unintended consequences of such a transition do not undermine the move, which may have other real spillover effects that enhance subsequent policy otherwise, the other intended monetary policies that Dr. Soludo has in mind to implement can well be implemented under existing rates, though now he may need to appeal much to the public and to foreigners that the economy is indeed getting stronger and further, he has to find a way of coping with existing volumes of counterfeit currency that potentially trigger inflation and undermine policies.

katampe  # 10 | 23.08.2007 23:49

This is where I believe much of the debate should center around - the adjustment process, which to be smooth requires much educating of the masses and a willingness on our part as a whole to make it work, this in turn will reduce opportunities for arbitrage by significantly eliminating information asymmetries. I agree with some of your submissions without losing sight of the goals of CBN when they introduce policies. The primary goal is the stability and supply of the naira. The tools that enable this is interest rates, OMO (open market operations), reserve requirments, etc. I think so far, the CBN hasn't done badly in using their monetary tools effectively. But, the problem is the adjustment process, and your suggestion on the education of the masses. Wouldn't it have been better if the issue was debated before the announcement, at least the masses would have been better educated before the announcement? Educating the masses now would be more difficult since they were not carried out in the process. Mind you the masses are not neccesarily the poor, they include the elites and other decision makers in private spheres that CBN needs to make implementation easier. Also, many commentators have mentioned the higher denominations that Soludo introduced that must have cost Nigeria a fortune, why did he not think it through before he embarked on such a policy? Many moons later, he is back with a policy sommersault. As for me , the process that gave birth to the policy is flawed, and that does not mean it is not a 'good' policy.The ordering of our policy priorities hasn't factored the demographics of the people that need most intervention in the country against the interest of the naira. The fad word brain drain isn't right anymore, brain drain happened when there were good schools , many lecturers trained overseas, economy operated within a reasonable level of efficiency that people could be trained to a level of experience that was worthwhile and could be considered a gain for the countries that benefitted. The critical mass of Nigerians living the country are ' slaves ' that would do anything to survive. Right of the bat, especially for the countries benefitting from the head count they are an expense.They have to be trained on the cherished values of their new society, and this means upgrading their skills and it costs the new government serious money to invest in the venture. This seems different from the Wole Soyinka's, or Chinua Achebe's school colleagues of yesterday, since they hit the ground running in their new society and were contributing from day one. Nevertheless, I think you would have been a very good media man for Soludo. You gave rational justifications for the policy, and it was a good comment.