23

Mar

TOO MUCH TALK ABOUT DOLLAR CERTIFICATES 04082014

2014-08-04

TOO MUCH TALK ABOUT DOLLAR CERTIFICATES?
BY HENRY BOYO

The regular readers of “Economic Renaissance” will already be very familiar with our strident unceasing advocacy that a simple reform of our payments system will positively transform the economic and social welfare of our people beyond the faltering expectations of the current managers of our economy.
 
Last week’s article titled “The Strategic Blunders of CBN’s Monetary Policy Committee” elicited a subtle ‘chastisement’ from a reader who felt that my constant recommendation for the adoption of dollar certificates for the allocation of dollar denominated revenue was superfluous. The rejoinder by one, ‘Quicksand’ in the online edition of that piece is as follows:
 
“Mr. Henry Boyo, your articles keep talking about dollar certificates, Naira supply minted by CBN for every huge quarterly allocation etc. Can't you write on various other aspects of the Nigerian economy? Giving cutting edge perspectives of realities within our current macro economy. It will help a lot of Nigerians manoeuvre around a difficult economy. Growth is reported in this economy, so write about inclusive growth methods that can educate the government and the governed. Stop sounding Utopian. Your views rest too much on this dollar/Naira exchange rate issue. What about the Uk? They continue managing their policy thrust on quantitative easing and yet their economy is growing remarkably. You are someone I respect but may soon challenge to a healthy debate as to why your views aren't a cure to Nigeria's economic malaise as long as corruption, nay, 'stealing' is still rife. Consider this!”
 
Indeed, some other readers may also share the above perspective; nonetheless, before my attention was drawn to ‘Quicksand’s challenge, the gauntlet for the defence of my unusual focus was picked up by ‘Bambam’ who is apparently also a close online follower of this column; 
 
In response, Bambam noted, “I prefer he keeps hammering on this point until our looters turned leaders listen. We can't make any progress until we get this right. Every other thing would just be cosmetic. Read the article again. The mafias holding our lives bound would prefer to cause excess liquidity and then mop it up by borrowing the same money they introduced into the system as Treasury bonds. It’s abominable!! No wonder all those who steal our commonwealth either warehouse it abroad with interest paid on it or use it in buying T-bills from the CBN through discount houses in Nigeria. It’s the reason our looters have no incentive to invest the monies they steal in building industries, creating wealth or providing jobs as doing that means they have to deal with infrastructure problems, changing government policies, marketing of products and services etc. when they can simply buy T-bills and get paid 12-14% interest when it matures. So if you loot say N1billion naira and buy Treasury bills, you are guaranteed N120million interest within 6 months to a year risk free when the bond matures. This is demonic.  We need a change!!”
 
The above observations by ‘Bambam’ was reassurance that my interventions have not been in vain and that after over decade of the advocacy for the better management of our money supply, more Nigerians now appreciate why the stumbling block of eternally surplus Naira has inevitably made us poorer, despite increasing foreign reserves, and also why this macabre relationship will regrettably persist as long as CBN retains its stranglehold monopoly on the forex market. 
 
“Indeed, the instrument of money is central to any economy. If however, the process which determines the supply and the cost of money is abused ab initio, it will become impossible to achieve the objectives of inclusive economic growth and social equity in any country. Regrettably, the cost of funds and the Naira purchasing value are consciously and deliberately debased by CBN’s constant substitution of fresh Naira supplies for distributable dollar denominated revenue. No advocacy for remediation of this economic malaise can be too strident if it will ultimately release the true potential for rapid economic and social growth for all Nigerians.
 
It is meaningless, for example, to profusely discuss and debate congenital deformity and the consequent malfunction of various parts of the human anatomy if we downplayed the more important discussions on the integrity of the human embryo. Similarly, it would be unreasonable to ignore leprosy and focus instead on treating a mere skin wart!

It would also be irresponsible to focus on treating the symptoms of malaria and ignore the anti malaria drug which contains specific ingredients to kill the malaria parasite. Of course, the patient’s illness will become protracted and he will ultimately die.

Similarly, you cannot talk of addressing our economic malaise without reference to how money is created and the supply is regulated. It is for this reason that serious investors everywhere take a cue from the monetary policy instruments of the apex bank in each country.
 
The key instrument adopted as economic compass by Central Banks everywhere is the control rate governing the market cost of funds; that is why changes in the monetary policy rates of the US Federal Reserve, the Bank of England or the European Central Bank send a potent current throughout the economy. Thus, the cost and supply of money cannot be left to arbitrary whims and caprices if the national objective is inclusive economic growth.
 
Consequently, any discussion which downplays this universal reality must be the result of ignorance or mischief; for example, the unbridled rate of corruption and prevalence of humongous slush and high cost of funds in the system will not be possible without the umbrella of constantly surplus funds in the system; so, in order to bring the economic ship of state on course, we must confront the present cause of eternally surplus Naira.
 
Presently, however, there is no greater instigator of excess liquidity than the constant substitution of Naira allocations for dollar denominated revenue. This is the poison in our economic system, and even the CBN does not deny that such surplus Naira is responsible for its high monetary policy rates and ultimately also the high cost of funds, which retard industrial growth, and restrain creation of increasing job opportunities! 
 
Truly, our nation’s development will remain stunted for many generations if we do not tackle the burden of surplus Naira which is also responsible for the Naira’s weaker exchange rate and the accommodation of wasteful fuel subsidy payments; worse still, excess liquidity also drives high inflation rates which impoverish static income earners and wipe out the income expectations of pensioners every ten years or so. 
 
I refuse to be a part of the Band of Deceit that trumpets cures to symptoms of a disease rather than recommend a frontal attack to the real cause of the disease. Indeed, the evidence is clear that our people have become poorer and Nigeria has become more debt laden despite increasing dollar reserves and surplus Naira in the last three decades!
 
Nevertheless, I will welcome any serious suggestion of an alternative more potent cure to our economic malaise whenever such becomes available.
 
SAVE THE NAIRA, SAVE NIGERIANS!!