The Naira: Revaluation or Redomination, Part 2
Posted August 26, 2007 · Ejike Okpa II
See Part 1.
anyone that thinks since other countries have done so Nigeria should, probably does not understand the implication and consequence associated with the response by a cat/rat jumping into the water simply on the observation that a lizard did so.
as it is, there is too much Naira in circulation but very limited goods and services to support its value. when Abacha was in office, he had a parallel/dual exchange rate; one for the government - himself alone at N22 to $1 and the market rate at about N90 to $1.00. he did not spend money on projects and Nigeria’s foreign exchange reserve soared to the highest level in more than a decade [see The Economist]. as a result of the artificially induced reserve, the naira appeared to have stabilized at a rate less than N100 to the dollar [1998], because Nigeria could support its current account [cost of imports] within the 90 day required period.
fast forward to 1999, when OO took over. the naira plummeted because spending was not matched by revenue [deficit budgeting] and in 2000, all Nigeria earned in oil revenue was less than $20b. naira responded by jumping to N150 to the dollar. it has in more than 6 years appreciated to its current level simply on the grounds that some of Nigeria’s foreign debt is either deferred, suspended or barely canceled which appears to give the naira some positive movement. it is not the quantity of money in circulation but the quality of it measured by purchasing power and consumer confidence on local goods and services.
determining the value of any currency takes more than wishful thinking and a simple act of national pride, does not make the ranking. when Idi Amin was in office, his response to declining Ugandan shilling was directives to the Governor of Uganda Central Bank to print more money. well, we know what happened since then. the Ugandan shilling has remained watered down despite favorable reforms and rating by IMF and stable democracy.
anyone that ever took economics, understands that when more money chase few goods and services, there is hyper-inflation and the currency has no value; case in point ZimDollar - Zimbabwe current situation. there is plenty of naira in the system but it does not help to satisfy and meet the daily needs/wants of the average Nigerian because there is lack of services, excessive government spending in relation to GDP in certain sectors, is overly unnecessary.
of course, Nigeria’s CBN Governor Soludo’s move will awaken pride and sensitives in all quarters. what matters is that there is intelligent discourse on the subject. and not many has what it takes to understand the complexities associated with currency valuation. to understand money, one has to understand the ‘Six Functions of A Currency’, and couple that with the various gyrations required to calculate rates, ratios and sensitive analysis.
when Nigeria tightens its public spending to the level that the effective benefit of every naira spent by the government can be measured in the range of 55% to 80%, then the value of the naira will firm. what Nigeria gets is less than 25% on every naira spent by the government. holding the naira to a level to meet political game plan will not do anyone any good except the artificiality that ensues as a result.
Soludo’s move is ill timed and will not do Nigeria any good at the moment.
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i bellive that nigeria is the richest country in the whole africa but our goverment are so greedy to develope our country. and again the idea of tribalism in nigeria is so high the ibos are like the black man in england and american, in their own claimed country why i think if nigeria want to be greet acountry let it put in considration, thank u
Added by henry chidozie ibekwem on Nov 18 at 06:47 PM