By Henry Boyo

The public’s usual refrain to rising prices is that “manufacturers/suppliers/farmers have increased prices of their respective goods and services; the supplier is evidently the villain in public consciousness; it would indeed require the patience of Job to convince most Nigerians that such condemnation was misplaced and it may even be more difficult to put the blame for high cost of funds at the doorstep of Central Bank. Consequently, it would be unbelievable to even suggest that CBN is infact the ‘devil in our economic workshop’.

Evidently, money is the binding glue that also predicates all economic activity; it is also true that without the instrument of money as a means of exchange and a store of value, modern economies would fail. It would be chaotic if everyone could simply create or introduce their own acceptable versions of money as this would ultimately lead to millions of different ‘brands’ of money, with indeterminate purchasing power; apart from the ensuing market confusion, the unregulated and compulsive creation of individual money ‘brands’ would set so much purchasing power to chase few goods and services; inevitably, the prices of goods and services will spiral.

It is expedient therefore for every government to approve and mandate a single supply source for a nation’s currency; consequently, the Central Bank constitutionally, performs the role of sole custodian and supplier of all Naira. Nonetheless, if CBN exhibits reckless ‘abandon’ in its creation and supply of Naira, the impact of the resultant price rise would not be any different, if money supply gushed out from myriad sources; the CBN Act therefore ensures considerable measure of independence and shields the CBN from political interference and any pressure to excessively print more and more Naira.

The CBN’s mandate for appropriately managing money supply for inclusive economic growth is defined as the maintenance of price stability, which basically includes keeping a lid on the general price level, by modulating money supply, and also ensuring that businesses can borrow at cost levels that would sustain industrial and economic growth with increasing employment opportunities.

Instructively, whenever, CBN pumps too much Naira into the system, both inflation and cost of funds are adversely affected, as increasing Naira supply will not only drive prices but may also encourage easy access to loans and increasing consumer demand which could further fuel inflation. In such event, CBN is regularly forced to jerk up the rate at which commercial banks obtain loans from the Apex Bank to shore up their cash positions from time to time; thus, if CBN’s monetary policy rate is 13% as it currently is, the banks will be instigated to lend to their customers at over 20%! It is revealing, that while CBN’s MPR is oppressively high at 13%, the policy rate in successful economies is usually below 3%!

Thus, foreign loans are generally cheaper than rates offered by our money deposit banks and it is also obvious that goods produced with cost of loans below 7% will always be more competitive than local productions which are funded with over 20% interest rates.

The CBN also has the constitutional mandate to maintain exchange rate stability; a currency with an exchange rate that is constantly on steady decline, particularly in an economy that is heavily dependent on imported raw materials, will also increase domestic production costs and may not successfully compete against cheaper imports. Instructively, therefore, the more liberal the official supply of Naira, the weaker ultimately will be the exchange rate as more Naira chase CBN’s limited dollar auctions; consequently, ravaging inflation, high cost of funds and a continuously weaker Naira are all symptoms of too much Naira creation and supply by CBN!

So, in the light of the above, why then does CBN continue to inundate the money market with excess Naira supply? The unfortunate reality is that CBN impulsively instigates the oppressive consequences of a “surplus Naira syndrome” every month when it substitutes fresh Naira supplies for distributable dollar revenue. Farcically, the CBN proceeds immediately thereafter to remove/reduce part of the excess Naira supply by borrowing back from commercial banks hundreds of billions of Naira every month at over 10% so as to actively prod banks to lend at much higher rates to customers so as to contain inflation by discouraging borrowing and spending.

Incredibly, moneys borrowed by government at such high cost will not be applied to remediate, our health, educational, power inadequacies or indeed for any other positive social benefit, as such expenditure would only reintroduce more funds into an already Naira suffocated economy to rapidly drive the beleaguered train of inflation, higher cost of funds and a weaker Naira.

Incidentally, the CBN and the Monetary Committee see the mandate for price stability as that of maintenance of stability at any level, even if such levels, as in our current predicament, mean stability of disenabling high inflation rates, at over 8%, disruptive cost of funds at over 20%, and Naira exchange rate which for over 20 years have never responded positively to increases in our foreign reserves inspite of extended import covers!

Sadly, the CBN which is evidently the villainous Agency which regularly poisons the money market with excess Naira supply has gotten away with this obvious rape of our economy for so many years without any sanction; indeed the tenure of CBN Governors   has nothing to do with success in maintaining industrially and economically stable rates of inflation e.g 1-3% as in focused and successful economies or indeed in bringing down cost of funds to industrially friendly levels such as 5-7% across the board (not selective bail outs which only exacerbate excess liquidity and the collateral of high inflation and interest rates with an embattled Naira in tow)!

Consequently, in order to ensure best practice standards in monetary strategy, it is absolutely necessary that our expectation for international best standards must be enshrined in the CBN Act, so that any Governor and Monetary Policy Committee that is incapable of bring inflation below 3%, or fails to keep monetary policy rate at not more than 2% above the International standard of the London Inter Bank Offer Rate (LIBOR – usually between 1-3%) should resign from office, if such best practice standards cannot be re-established within 3-6 months. This provision would force every CBN Governor to make sound monetary decisions and evolve workable strategies, such as for example, the containment of excess Naira supply with the allocation of distributable dollar revenue with dollar certificates rather than direct substitution with Naira and the attendant scourge of Excess Naira on our people.

Save the Naira, Save Nigerians!!