17 Aug 2007 |
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Naira: Removing the zeros "WHAT Charles Soludo, the CBN Governor, has done is very interesting". "Tell me. I have been having fun in the past two days, you know. Listening to all the comments. All of a sudden, every Nigerian has become an economist. Market women, taxi drivers, and mechanics have become expert commentators on the revaluation of the Naira. So, sir, I am waiting for your own contribution to knowledge in this suddenly important aspect of our lives as Nigerians". "My friend, go and sit down. The problem with you economists is that you practise textbook economics. You can parrot all the theories and concepts, but in the end, that market woman, that taxi driver, is more of an economist than the confusionists who are removed from reality. Economics is about life, about reality". "It's okay. It's okay." "I don't even want to talk about economics, but the politics of it." "What has politics got to do with the revaluation of the Naira." "Everything." "What the CBN has done is to remove two zeros from the Naira, it has moved two decimal points to the left from the currency and placed the highest denomination at N20. This redenomination is a form of liberalisation which in the long run will strengthen the Naira and make it convertible." "But they got the politics wrong and because of that alone, I do not see the idea flying. If you read the papers, you'd find that the idea itself has been killed before it takes off." "How?" "The Federal Government has already disowned the CBN Governor. It is obvious that he came up with the monetary policy without consulting either the government, or the stakeholders. So, the Federal Government is setting up an Economic Management Team to study and review the CBN proposals. No member of the CBN is a member of this team. And it is this team that would advise the Federal Government. Don't you see the politics of it?" "The CBN is not into politics. It is an autonomous body. And on the question of monetary policy, the CBN did not have to consult the Federal Government or anybody at all." "Is the CBN superior to government? Is the CBN Governor superior to the President? Is the CBN superior to the Nigerian people?" "The CBN is not under any obligation to discuss monetary policy with your taxi drivers, mechanics and market women, I am sorry. Even the Minister of Finance, Shamsudeen Usman has said that the CBN Act grants it the freedom to formulate monetary policies." "And you believe him? Does it not occur to you that in fact by going over the head of the Minister of Finance to announce the re-denomination of the Naira, Soludo was more or less treating Usman contemptuously? What the Presidency is set to do is to remind him who the boss is?" "Has Usman told you he did not know about the policy?" "Has he told anybody that the Federal Government is aware of it? My layman's opinion is that on any matter at all that is bound to change the lives of the people, in such a dramatic fashion as Naira redenomination, there should have been public debates, inputs by stakeholders and the Federal Government should have been carried along. It is a psychological thing. In fact, such a policy should have been announced by the President as part of an integrated package. The CBN could stand beside the President if he so wishes." "Is this thing about ego, or the progress of the country?" "You still don't get it. Currency revaluation is not a fool-proof solution to a country's economic problems. It could fail. It failed six times in Brazil." "It worked in Israel. It is working in Ghana where the Cedi now exchanges for 96 cents." "That is no guarantee that it will work here. The Japanese Yen is 117 to the dollar. They are not talking about dropping zeros or moving to the decimal left. The Japanese economy is the second strongest in the world. Our problem is not the exchange rate, but the way we manage everything else. And if anything goes wrong, it is Yar'Adua, the President that will be blamed, not Soludo. Autonomy? Can you imagine Soludo trying what he has done with former President Olusegun Obasanjo?" "This is the problem with us in this country. Instead of discussing the idea of revaluation, you people are politicising it. Soludo's proposal is about the power of ideas and the courage to pursue them. I consider him the most enterprising CBN Governor in Nigerian history. I admire his boldness. Let us look at his ideas, not Yar'Adua or any other person's ego." "Do you know what is likely to happen?" "What?" "Either of two things. One, the Economic Management Team can look at the proposal and throw it out. Which would mean that Soludo has to resign his position immediately. Or two, the proposal could be accepted but modified in such a form that even Soludo would not be able to recognise it. In which case, he'd be frustrated out." "You have left out a third possibility. The Federal Government could accept the proposal wholesale. In which case, Soludo will become a hero." "And if he loses out in what I think has become a power game., what will he do?" "That has nothing to do with his vision. It will be on record that he recommended the revaluation of the Naira. And I insist that it is a good idea. This is something he should have done a long time ago, in fact since 1999." "He was not the CBN Governor in 1999." "Okay, since 2003." "But he says this is the second part of the reform agenda, beginning with the consolidation of banks, payment systems reforms, the strengthening of institutional framework." "But you know that it is not. This is not reform. It is a complete transformation of the country's financial system. Take the banks. Do you know that by August 2008, all the banks would suddenly discover that they have to look for more money to meet the N25 billion capital base requirement, except that figure is also re-decimalised...I read the Soludo speech. It is a complete reversal of what happened under the Obasanjo government. And he was part of it: the introduction of N1, 000 note and all that. He still needs to explain this particular contradiction." "You know what I think. I suspect Soludo is buying into something, before he is bought out. The question is: was he pushed, or did he jump?" "It doesn't matter whether he was pushed or he jumped. I agree with the objective of the initiative. He wants to strengthen the Naira. Absolutely. Devaluation of the Naira is the biggest sin they ever committed against Nigeria. I am looking forward to a status quo ante bellum when with my Naira in my pocket, I could travel to London for the weekend. Naira was so strong, you could change it for pounds sterling on the streets of London. Westerners looked for the Naira." "This is 2007 not 1980." "You are missing the point. We need a strong National currency to be able to integrate into the global system. To play the international game, you can use any platform. What Soludo is proposing is the use of our currency as a platform for that game. A country can play the game its own way. India used education in Computer Technology and Science. Today, all the jobs in that field are being taken from the United States to India." "Instead of focussing on the Naira, may be we too, should have started with education. All this talk about being one of the 20 best countries in the world in 2020. Nigeria cannot get there without solid human capital. Remember Awolowo. He started with education, we need regular power supply. The roads need to be fixed. The real sector has to be re-activated. We must make the country more efficient.. These are the fundamentals, the starting blocks." "But it is not Soludo's job to strengthen the education system or repair roads, and really, he has no business with electricity supply. He is in charge of the CBN. He has done what the CBN should do. Let other departments of state play their part." "So, he is the one pushing government. Precisely my point. He is pushing the Yar'Adua government. You see why the monetary policy should have been discussed as part of an integrated development framework and national economic agenda?" "Soludo was modest enough to point out that other levers of development must be activated. That is well spelt out in the NEEDS document." "Is NEEDS document a Yar'Adua policy document?" "Is he not running a government of continuity?" "Look, the very thing here is political will. Monetary policy cannot be formulated in the absence of politics. For this economy to function, you need more than a strong national currency. You need a lot of discipline in many areas. I agree with those who have argued that redenomination does not really mean anything. It is just a change of accounting procedures. That is all. We are running an import-dependent economy. Even if the Naira is one to one with the dollar, inflation would remain high, if there is no real productivity in the economy." "We have oil." "You will need more than oil. In the 70s and 80s that you want to return to, there was productivity in the Nigerian economy. There were jobs, the factories were open, and Nigeria was the strongest economy in West Africa. Today, we have lost all that." "We have to start from somewhere. The best moments in history have been produced by radical decisions." "Taken by the leadership elite, the product of a national consensus, not one man. My fear is that between now and August 2008, there will be a massive implosion within the economy: capital flight, disinvestment and too many people hiding their fortunes in dollars, a wait-and-see attitude by the industries, reckless speculation, with the economy playing Possum and the Yar'Adua government looking like it is out of its depths." "That may not happen." "It will, because of the contradictions that I spoke about earlier. What the CBN has done by giving a one-year notice, is to allow privileged people and institutions to take care of their affairs. Within a year, they will move their resources to safer havens, and then watch how Nigeria plays out. And who says N20 must be the highest denomination. And what is this thing about coins? How did they do it in Ghana? Go and find out." "You are a pessimist. But if the policy works, inflation can be better managed, productivity will rise, brain drain may vanish and the Naira will become a convertible currency, at least in the West African sub-region. Look at the policy again. There is something clearly positive about capital accounts liberalisation, and a new payment structure for tiers of government" "Is that Yar'Adua's plan?" "The CBN's plan." "Is it Soludo or Yar'Adua? I think that is the question. Where is government? What is Yar'Adua's economic plan?" "That certainly is not the question." "I think it is. And President Yar'Adua, I insist, needs to sit up. What kind of government is he running? The other day, it was the office of the Attorney General, today it is the CBN. He cannot run Nigeria if everything is just happening above his head."
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