In this event, we recall that the exchange rate remained at about N80=$1 when Nigeria was a Pariah nation during the Abacha years.  The Nation’s foreign reserves, which hovered at about $5bn at that time was only sufficient for just 4 – 5 months of our import needs.  As at the last count, Nigeria’s external reserve base now approaches $35bn with the prospect of the reserves exploding to over $50bn at the end of this year as a result of crude oil prices currently topping $60/barrel; meanwhile, our current reserves even after ‘dashing’ the Paris Club $12.6bn, will still adequately accommodate our Nation’s import bill for over 30 months; but surprise, surprise; inspite of our admission into the Committee of Democratic Nations and our ‘suffocation’ with so called excess dollar reserves, our exchange rate has actually depreciated to about N130=$1.  Now, Mr. Odoko and the eminent Professor of Economics who sit on the Board of the CBN apparently find nothing wrong with this anomaly!  We may add that South Africa’s reserves of $20bn can only accommodate four months imports bill; yet the South Africa rand exchanges at 6 rands to the dollar!  So how can the CBN claim to be preserving the value of our domestic currency by harping on its rigidity (not stability), and inability to appreciate inspite of favourable market forces!  A marginal appreciation of 1-3% in the face of surplus dollars in the last 12 months can only be a confirmation of an administratively fixed exchange rate as indicated in the Guardian editorial of 8/3/06; the protestations of Odoko and other CBN gurus to the contrary can only be self delusion or worse still, national deceit!

Odoko’s attempt to make a distinction between depreciation and devaluation of the naira rate does not hold water, as an administrative framework which is consciously skewed against the naira is a defacto mechanism for official devaluation!  A system which puts the naira value under downward pressure with increasing dollar revenue is to say the least a very funny and abnormal system! 

The joke of this year must be the plea by the CBN Governor to the Senate not to adjust the budget price of crude oil from $33/barrel to $36/barrel as the additional almost $3bn revenue which would accrue from the $3/barrel increase would cause problems of liquidity in the economy and would support the CBN payment of interest of over N300bn to the banks to mop up the naira cash surplus from the system with the instrument of treasury bills and bonds this year!  Worse still, the CBN Governor indicated that the mopped up funds are not applied to the crying needs of our people, but that the funds are just simply sterilized (the mind boggles why any right-thinking person would pay so much for money he does not need, especially at a time when the same person has so much savings in his account which his financial adviser has asked him not to touch).  This is not madness; it is folly of the highest order!

As if to compound the folly in the administration of our Nation’s monetary policy, the CBN has in the last fortnight decided to fund the black market with dollars; indeed, each registered bureau de change will be allowed to purchase $200,000 twice weekly for sale to off the street customers, who do not need to support their forex demand with any meaningful documentation!  The CBN will be hard-pressed to identify any progressive country which has chosen this inexplicable path to economic development.   Our ailing industries may become comatose as the league of smugglers (both small and elite) of contraband gain cheaper access for their dollars and consequently put the demand for locally produced goods under severe pressure.  Sooner than later, the heavy cost of providing own energy and other infrastructure and the high cost of borrowing with interest rates above 20% will put local manufacturers out of business and increase the level of unemployment in the country.  Sobering thought!  The CBN Image Maker in his defence of his paymaster also rejected the suggestion in the Guardian editorial that the dollar component in the monthly distributable revenue is changed by the CBN at a rate below the official WDAS rate of about N130=$1.  Well, the arithmetic after deduction of naira denominated revenue from the monthly distributable revenue suggests differently; i.e. that a rate closer to N110=$1 as the applied rate.  For the avoidance of doubt, the CBN may do well to give a monthly breakdown of the components of the distributable revenue, i.e. how much is naira derived and how much is dollar derived; this would eliminate any ambiguity about the rate adopted for changing the monthly distributable dollar revenue before sharing.  In the spirit of transparency, this should not be too much to ask from the Apex bank.  The Apex bank may also want to explain to Nigerians where the naira used to convert the monthly distributable dollars come from!

In our paper titled “A LIBERALIZED FOREIGN EXCHANGE MARKET: a proposal for a liberalized foreign exchange market in Nigeria and its economic benefits”, we maintain that IFEM, DAS, WDAS, etc not withstanding, the reality is that it is unhealthy for the economy, for the CBN to remain the supplier of over 80% of convertible dollars to the market and at the same time be the major supplier of naira to the same market.  The new WDAS has not changed this obtuse and incestuous framework.  In the past, the CBN supplied dollars to about 90 banks, who bidded on behalf of customers; today, the same supplier (CBN) provides 80% of the dollar funds to 25 banks, who in turn sell to their customers.  The principal buyers may expand from 25 when bureau de change operators are accommodated, but the structure remains the same; a CBN monopoly of the supply end for dollars and a CBN monopoly of the instruments for supply of naira into the system; so, far from being a liberalized market as claimed by the CBN.  The truth is that a veritable monopoly still persists, since all the principal buyers cannot sell below the price they paid the CBN (the monopolist supplier) for each dollar purchased!  A more economically progressive alternative is to liberalize the dollar supply end of the market, not by making dollar cash freely available to every end user, whatever the flimsiness of their need, as the CBN is currently doing, but by ensuring that the true owners of the dollars ab initio receive the dollar component of monthly distributable revenue as dollar certificates which they can change for naira from the banks or other such registered outlets.  In other words, the 36 states, 774 local governments and other constitutional beneficiaries of the federation pool will now form the supply base for the 80% of monthly distributable dollar revenue.

In this manner, since no huge naira balances are paid into the banks as a result of CBN’s unilateral monthly dollar conversion to naira, and the resulting problems of excess liquidity, we will have a framework where more dollars will be available against relatively static quantum of naira; i.e. more dollars chasing naira, so that the greater the dollars paid out in consonance with our rising dollar revenue, the more dollar certificates that will chase available naira and in true response to supply and demand, the naira will appreciate simultaneously!  This arrangement is different and economically more universally compliant than the voodoo framework currently being consolidated by the CBN; a framework that leads to deepening poverty of our people and our economy and.  While the CBN Corporate Affairs Chief is busy covering the king’s nakedness with empty words, Prof Sam Olofin of the CBN Board of Directors on his side has expended effort to defend the expense of N50m on a banquet!  Wonders shall never end; if N5m was expended for a congratulatory party, probably no one will raise an eyebrow, but N50 million for chop chop in a country where there is such high unemployment and most people go to bed hungry, it is certainly an obscene and immoral act. 

No one begrudges Prof. Soludo his awards, even though one wonders whether the magazine who awarded our man the CBN Governor of the year would consider their own Bank of England Governor as worthy of such award if inflation in England was raging at over 20% and commercial bank lending rate is in excess of 25%, while the Bank of England’s Minimum Rediscount Rate (Banking Control Rate) is over 14%!  I think the answer to this question is out there in the wind.  Interest rates, inflation, employment, strong local currency, these are the universal indices for evaluating performance, not just an obstinacy to ensure compliance with an order!  The banking consolidation will not bring down interest rates or inflation or reduce unemployment so long as the Nation’s dollar revenue is converted to cash before sharing and so long as the banks can make good money from the differences between official and black market rates of exchange and also have the facility of government placed funds to purchase government treasury bills and bonds at handsome interest rates!  The banks will continue to show no interest in the real sectors of the economy and the huge profits being declared in the banking sector will cover ‘chicken feed’ expenses in excess of N50m for the celebration of both staff and major stakeholders in the banking sector in the months to come.  It may be superfluous to even mention the destabilizing effects of the prime salaries and wages in the banking sector on the rest of the economy.

It would be facetious to assume that the eminent Professors on the Board and the 27 PhD Economists recently recruited into the CBN do not know that they are chasing shadows with their current monetary framework; the truth is more likely to be that their hands are tied and they all know on which side their bread is buttered.  Dr. Obadia Mailafia, a Deputy Governor in the CBN revealed recently that the ‘easy dollar policy’ now being implemented by the CBN was a major condition for the widely condemned debt relief which lightened the burden of our reserves by $12.6bn within 6 months; never mind, that the same group of creditors who fingered our pockets recognize that we are the 6^th poorest nation in the world with chronic deprivations in the areas of water, health, education, power supply, etc, etc.  Note also that member countries of the Paris Club are badly hit by what they consider to be an unjustifiable surge in crude oil prices and consequently their huge payments to countries such as Nigeria.  Any avenue to mitigate their huge outlay on crude oil will be good business sense and what better way to do this than to ensure that we do not get real value for the dollars they pay! 

This will be possible if the naira does not appreciate significantly inspite of our rapidly increasing reserves, or better still if the naira actually depreciates in the face of rising reserves!  The simplistic attempt to bridge the gap between black market and official exchange rate is a step in the direction of further depreciation of the value of the naira.  Indeed, the naira rate has since fallen from about N127=$1 to over N129=$1 since the introduction of WDAS.  Odoko reckons that it is too early to judge, but as they say, morning shows the day; so, further naira depreciation may well be assumed inspite of our rising oil wealth. In this macabre drama, the Paris Club and IMF and World Bank are acting in concert by embedding and paying the salaries of their own men and women in the bedrooms of our monetary institutions. Need we be reminded that he who pays the piper dictates the tune?  For now, Okonjo Iweala, Soludo and co are heroes to the Paris Club, IMF and other neocolonialist operators; but their tenure in the corridors of power may have brought more pains to our people and created serious distortions in our economy inspite of increasing wealth!  But who cares, earlier IMF-sponsored Gurus came with their SAP and fully sapped the strength out of our currency and by extension, our people; they got away with it.  Now, the new kids on the block are poised to finish the job if they can!