“Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion”
- Jack Welch
The frightening descent of the Nigerian economy deeper into the abyss of dollarisation is placing the country on a pathetic path where a high heap of its currency, the Naira, may soon be required to purchase an inconsequential marketplace item.
Had the Central Bank of Nigeria (CBN) not sustained its commitment at saving the country’s economy with its global-standard monetary policies and development finance initiatives, this situation would have crashed the Nigerian economy to a pathetic state, considering the status of the country as Africa’s largest economy.
That the Naira is still substantially standing up against the Dollar, still much in the manner of young David combating the mighty Goliath of Gath, is expressive of the exemplary expertise and commitment of the Governor of the CBN, Godwin Emefiele, in managing the situation well to keep the country’s economy afloat according to emerging global imperatives.
To enable the Naira dare the Dollar, Emefiele had declared that the currency for transacting business in the country remains the Naira, warning that it is illegal to carry out transactions using the dollar.
He said: “We will be looking at areas where people are making demands for foreign currency; people who are landlords who are asking for rent in dollars; schools that are asking for school fees in dollars or transacting business in dollars.”
Emefiele must be revered for being resolute and firm on the implementation of all monetary policies and other initiatives aimed at strengthening the Naira for the prosperity of the Nigerian economy.
This dollarisation of the Nigerian economy, wholly attributable to the recent wave of the depreciation of the Naira, has already ignited a trend of financial transactions at both micro and macro levels of the economy, showing portents of not just further weakening the exchange and purchasing power of the Naira, but perpetuating the enslavement of the country to the western economies.
The Naira recently depreciated to over N600 to the US Dollar at the Forex market, in sharp contrast to the rising price of crude oil, which should have shored up the currency and guaranteed exchange rate stability with increasing forex inflows.
Part of the scary dollarisation trend is that more legal and illegal financial transactions are conducted in dollars – bribes are requested in dollars; more educational institutions request for the payment of their fees in dollars.
This situation begets two more pathetic situations: the dollar squeezes the Naira out of a significant percentage of financial transactions at an accelerating rate; the monumental majority of Nigerians who cannot afford the dollar for some crucial livelihood support transactions get more deeply pauperised, which further incapacitates them for some substantial activities crucial for the country’s economic growth and prosperity.
At the macroeconomic policy level, the persistent weakening of the Naira by the dollar impairs monetary policy transmission in spite of whatever effort by the CBN to shore up the Naira to the dollar with its forex intervention policy and its development finance initiatives.
The apex bank, in, albeit fragile, efforts to strengthen the Naira, even threatens to prosecute whoever is found transacting business in the country with foreign currencies as medium of payment.
This threat is backed by the provisions of the CBN Act of 2007, that “the currency notes issued by the bank shall be legal tender in Nigeria…for the payment of any amount.”
The Act stipulates further that any person(s) who contravenes this provision is guilty of an offence and shall be liable on conviction to a prescribed fine or six months imprisonment.
At the global level, dollarisation impairs the capacity of such monetary authorities as the International Monetary Fund (IMF) to perform its duty of a last-resort lender.
The cancerous effects of dollarisation permeates the operations of banks by hampering their liquidity management and worsening the impact of exchange rate flows on their balance sheets, thus raising the risk of contractionary effects and bank failures.
The apex bank governor has stated that it is illegal in Nigeria to transact business in foreign currency, warning those indulging in the practice to desist from doing so, as the CBN is set to prosecute them for their recalcitrance.
To enable the Naira withstand the rather pummeling strength of the dollar, financial experts are unanimous of the need for Nigeria to boost its patterns of productivity as a veritable method of strengthening the Naira.
This implies that Nigeria, whose currency is not convertible and does not serve as international currency, must earn foreign exchange through high productivity and export of goods and services; receipt of monetary gifts; as well as receipt of foreign loans and investments in order to import goods and services critical to economic growth and development as well as the enhancement of the standard of living of its citizens.
Nigeria needs high levels of forex earnings and external reserves to improve the naira exchange rate.
Therefore, to check the seeming intractable dollarisation of the Nigerian economy, the country must develop domestic production structures to guarantee improved forex earnings and stabilise the exchange rate.
The country must also diversify its economy and re-engineer to being export-oriented, supported by a workable trade policy as well as propitious and promising macroeconomic environment.
Dambatta, a veteran journalist, writes from Kaduna via [email protected]
