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So, who is afraid of a stronger Naira?


By Henry Boyo

IN last week’s article, the advantages of a stronger naira exchange rate were identified; these benefits include much lower inflation and interest rates, increasing industrial expansion, with rapidly rising employment opportunities.    This writer also explained why a stronger naira will eliminate fuel subsidy and also reduce the size and cost of our national debt.    (See “Advantages of a Stronger Naira” at

This week, we will examine why the Central Bank of Nigeria still consciously promotes a monetary strategy that deliberately weakens the naira; we will also, identify the major beneficiaries of a weak naira exchange rate, in the following interrogative narrative.


Why does CBN consciously promote a weaker naira with its substitution of naira allocations for dollar-denominated revenue?

The CBN hinges its defence of this economic buccaneering on Section 162(1) of the Constitution, which stipulates that all financial accruals must be consolidated in a federation account before sharing, in line with current provisions on revenue allocation.    Unfortunately, the CBN has wrongly interpreted Section 162 to also imply that all non-naira-denominated revenue must first be converted to naira before sharing.    Nonetheless, it is evident that CBN’s substitution of naira allocations for dollar-derived revenue instigates the unyielding dark clouds of excess naira, and the collateral burden of a weaker exchange rate, with its diabolical train of economic distortions.

If the CBN does not substitute naira for dollar revenue, how can beneficiaries spend their allocations, since dollar is not legal tender in Nigeria? 

The constitutional beneficiaries of dollar revenue would receive  dollar certificates  for their allocations of dollar-derived revenue; however, these certificates must first be converted to naira at  a properly designated commercial bank, before spending.

What is the difference between naira substituted by the Central Bank and naira exchanged for dollar certificates from the banks? 

The naira substituted by CBN is actually additional fresh naira supply, which the banks may leverage on to instigate over tenfold increase in money supply.    Thus, the process of substitution continuously promotes the presence of surplus naira and induces the disenabling environment of high inflation and interest rates, weaker exchange rate, increasing national debt, severely constrained industrial subsector, high rate of unemployment, increasing fuel subsidy, and widening gap between the rich and poor.

Conversely, the exchange of dollar certificates directly through commercials banks by beneficiaries will not increase money supply to induce the disenabling encumbrances listed above.    In fact, the banks will become more protective of their naira stock, so that their cash positions are not unduly jeopardized, whenever depositors want access to their funds.    Ultimately, in such ambience, the naira exchange rate will become stronger, as more dollar certificates chase the relatively stable existing stock of naira in the system.

What will be the economic implication of a stronger naira exchange rate? 

Quite simply, the result will be the direct opposite of the adverse consequences listed above, for a weaker naira.    Thus, perceived systemic surplus naira will be exorcised from our monetary system, with the welcome development of sustainable single-digit cost of funds across the board to the real sector, with inflation rate (closer to best practice inflation rates elsewhere), at well below 4%.

Consequently, with subsisting low cost of funds and the absence of excess liquidity, the size and cost of servicing our national debt will also fall remarkably.

Such an enabling environment with a stronger naira purchasing power will rapidly create millions of jobs, with increasing tax revenue nationwide, while the increase in the number of salaried workers would further stimulate consumer demand, which will in turn, instigate further industrial expansion, with still more job opportunities in the process.

Ultimately, with a much stronger naira below N80:$1, fuel prices will fall below N97/litre, and we will save the princely sum of about $12bn (N2tn) annually from the total elimination of fuel subsidy; fuel smuggling into neighbouring countries will also become unprofitable.

So, if it’s all so simple, who are those afraid of dollar certificates and a stronger naira, and why? 

Those who are fervently patriotic about the sovereignty of the national currency, but are ignorant of the process, which determines the naira/dollar exchange rate, are obviously misguidedly opposed to a stronger naira.    The other bastion of opposition expectedly comes from the major beneficiaries of the current economically poisoning process of CBN’s substitution of naira for dollar revenue.

For example, CBN’s recent unbridled unconstitutional billions of Naira interventions and the reckless spending, which characterized Lamido Sanusi’s term as governor, were funded from the apex bank’s self-styled buoyant ‘own’ forex reserves, which were ironically consolidated simultaneously with deepening poverty induced by CBN’s substitution of naira allocations for dollar revenue, despite the collateral of deepening poverty.

How does CBN’s substitution of naira for dollar-derived revenue fund corruption?

The liberal latitude for corruption in public service is facilitated by the ‘eternal’ presence of surplus naira in an economy, without requisite accountability; for example, the church rat will expectedly be lean and trimmed of excess fat, when compared to its close cousins, who live in holes and crevices in an active bakery, replete with surplus food.         Is the public sector the only beneficiary of the substitution of naira allocations for dollar-derived revenue? 

No, the banks are also major beneficiaries of this skewed system.    For example, the banks earn over N300bn annually from the simple business of receiving government deposits at zero per cent and lending such funds back to government at double-digit interest rates.    Indeed, with such high returns, it is not surprising that banks show little interest in supporting the real sector.    Curiously, government has become heavily indebted to the same banks that have custody of its free funds.

Furthermore, banks also facilitate capital flight, and make huge gains from round tripping and speculative consolidation of foreign exchange, despite the adverse consequences on the economy.

The Bureaux De Change (BDCs) are also proxy beneficiaries of the current system, and they nonchalantly fund the millions of dollars couriered across our borders daily.    The BDCs evidently also fund the activities of smugglers who do considerable damage to our local industries, and constrain employment opportunities.

It is curious that CBN is reluctant to relinquish dollar revenue to constitutional beneficiaries, but the apex bank willfully allocates dollars to BDC operators, who may, in turn sell at a profit to any customer, including the original owners of the dollars; i.e. government and MDAs!

Will payment of dollars not also facilitate capital flight?

It could, but no one is suggesting the payment of raw dollar cash; dollar certificates are not valid for domestic transactions, and their values cannot be repatriated abroad without direct collusion from CBN.”


This article was first published on June 6, 2014.




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