CENTRAL BANK'S LION-SHARE OF FOREIGN RESERVES
BY LES LEBA
The Central Bank Director of Research, Charles Mordi, at the Save Nigeria Group (SNG) forum recently in Lagos, claimed that CBN owns $30bn out of the total reserve of about $43bn.
Mr. Mordi explained that since CBN had paid constitutional beneficiaries naira values in place of distributable dollar revenue, the apex bank had become the owners of the dollar balance!!
Thus, the bigger the distributable dollar revenue, the bigger will be the burden of huge naira allocations and excess liquidity, and the greater also will be the challenges of inflation, cost of funds, rising national debt and a weaker naira! But guess what, the bigger the naira substitutions, the bigger will also be CBN’s dollar profits from its currency transactions!!
These CBN dollars caches may have funded the serial looting of the treasury in the last 30 years, as both military and civilian presidents had access to a pool of dollars that belonged to no one, but CBN, who exercised absolute authority over disbursement. The billions of dollars power contracts and the Paris club debt payments may have also found this unencumbered dollar pool quite handy!
CBN claims to also deploy its ‘autonomous’ reserves to support the naira and also serve as collateral to reduce cost of foreign loans to our government. Inexplicably, naira rate continues to depreciate in spite of increasing dollar income, while costs of our foreign loans still exceed the cost of such loans to distressed economies elsewhere.
Paradoxically, while federal government goes cap-in-hand seeking for both domestic and international loans at outrageous costs for such risk-free sovereign debts, our own CBN sits pretty with tens of billions of dollars, which exist outside the federation’s consolidated revenue account! Indeed, it is inexplicable that the CBN would also liberally allocate billions of dollars to Bureaux de Change (BDCs) at face value, while our government borrows the same dollars externally at a great cost!! The apex bank is obviously unconcerned that looters of the treasury and smugglers of contraband, which destroy our local industries, are the major beneficiaries of CBN’s unfettered dollar allocations to BDCs!
The CBN explained that it also deploys the ‘captured’ dollars to modulate critical aspects of our economic and social welfare; examples of such interventions include the selective millions of naira cash donations to victims of violence in Northern Nigeria and N1bn donation to a certain ‘beloved’ university.
Furthermore, a recent advertisement suggests that CBN is also embarking on interventions in secondary, tertiary and other public schools. The establishment of six Enterprise Development Centres in each of the geopolitical regions and N2tn cash injection to debt crippled AMCON are also all part of CBN’s fruitless and inappropriate efforts at ameliorating the adverse impact of its failed monetary strategy.
Besides, the equity and yardstick for selecting beneficiaries for such interventions, even in areas where established ministries and agencies with statutory allocations should have appropriate structure for better service delivery, remain as hazy as its shroud on its expenditure and staff remuneration budget.
For over a decade now, we have decried the totally inappropriate structure within which CBN captures the dollar earnings and substitutes monthly naira allocations; this arrangement has created serious dislocations and disruptions in our economy.
The CBN Directors at the SNG forum readily admitted that former CBN Governor, Soludo’s Strategic Agenda for the Naira, which was in sync with our observation, was the product of professional judgment, but unexpectedly, implementation was summarily truncated by President's Yar’Adua’s rejection of the proposed naira redenomination and a restructured payment system. Regrettably, Soludo, lacked the courage to stand by his professional judgment, and backpedalled to once again reinstate the existing poisonous and ultimately destabilizing framework of naira substitution, with the inherent liberal opportunities for corrupt practices!
The excuse that President Yar'Adua stopped Soludo's Naira Agenda because it was unconstitutional is quite untenable, because CBN's autonomy in such monetary matters was clearly enshrined in the 2007 CBN Act. What is possibly nearer the truth will be Yar'Adua's consternation that naira redenomination, as proposed by Soludo, entailed fresh commitment of billions of naira to production and promotion of a new currency profile to replace all the new denominations, which the CBN introduced only eight months earlier with equally great production and publicity cost! Ultimately, late President Yar’Adua threw away the baby with the bathwater without a whimper of protest from Prof. Soludo, who chose the continued enjoyment of the enormous perks attached to his office rather than adherence to professional integrity!
In truth, until we accept the obvious good sense in stopping the substitution of naira allocations for dollar-derived revenue, poverty will deepen even with rapidly increasing dollar revenue, as is currently the case, but Central Bank autonomous dollar harvest will continue to bloom!!
SAVE THE NAIRA, SAVE NIGERIANS!!