“….The committee observed that its previous decisions needed time for their effects to fully permeate the economy and therefore “all eleven members unanimously” voted to maintain the current position!!
The above is a summary of the conclusion reached by the Central Bank of Nigeria’s Monetary Policy Committee (MPC) at its latest meeting held between 23-24thMarch, 2015. Incidentally, the MPC has the critical statutory responsibility for advising the CBN on appropriate strategies for managing the supply of money at the optimal level that would progressively grow the economy. Curiously, there are few countries who are more abundantly blessed than Nigeria, yet relatively less endowed nations in Europe and Asia, boast superior social infrastructure while their citizens enjoy consumer lifestyles that entice our people to desperately seek the perceived “greener pastures” abroad and sadly join the brain drain. 
Evidently, good leadership should galvanise human and material resources to the benefit of the greater good in a progressive nation; however, the recognition of the critical central role of money in running a modern economy makes it imperative that a responsible government should be circumspect and embrace discipline in how it creates or increases the supply of money. Clearly, if a government pursues a flash in the pan populist agenda and prints so much money so that everyone can have a surplus ultimately, there would be so much more money than goods to buy, and you may need to pay N100, 000 or more for a mere loaf of bread!

Thus, abundant natural endowments will not save the economy of any nation if there is always surplus cash or excess liquidity in the system as inflation will spiral to make the local currency eventually worthless, such that, patriotism notwithstanding, everyone will sensibly seek to conserve their income or wealth in any other currency or instrument that is perceived to be relatively more secure and stable.For example, the unyielding Naira Depreciation from stronger than N1=$1 to the current rate of N200=$1 has led to preference for dollar holdings; consequently,  more commercial transactions are now concluded in dollars, thus enthroning the “phenomenon of currency substitution and partial dollarization in the economy”; a development which the MPC Communiqué decries and sadly recognizes to "have also significantly fuelled the unusually high demand for forex."

The Committee, consequently reaffirmed that “the Naira remained the currency of transaction in the economy and therefore advised the CBN to take all possible measures to address the development”.  

Clearly, the threat of dollarisation has been decried by all former CBN Governors, particularly, since the return to civil rule in 1999. Curiously, Nigerian preferred to hold the Naira when the exchange rate was much stronger than the dollar; incidentally, the Naira was widely accepted internationally, and some commercial outlets which enjoyed huge Nigerian patronage in London and elsewhere actually priced their products in Naira; you might say that we Nairaised the business in such locations! 

Nevertheless, in order to reverse the increasing present flight from the Naira, the Committee enjoined the CBN “to continue to fine tune demand management measures as well as implement appropriate supply enhancing strategies to ensure effective demand and utilization of foreign exchange in the country”. 

Clearly, from the preceding, the Committee obviously believes that the run on the Naira is the result of excessive demand for the dollar because of reduced dollar supply. The MPC is probably right, but the question that clearly begs for an answer is where do all the seemingly boundless supply of Naira come from to buy up all the dollars offered for sale every time? Surely, the more the supply of available Naira values against centrally rationed dollar supplies, the weaker will be the Naira, and such depreciation will further induce public adoption of other safer currencies as a store of value for their income. 
Indeed, in recognition of the serious consequences of excess Naira supply, the committee unanimously voted to sustain those measures that should make much of the bloated systemic Naira surplus inaccessible to potential borrowers, so as to curtail spending and restrain inflation and avert the discomforting possibility of ultimately having to pay N100,000 or more for a loaf of bread, if inflation goes out of control.Furthermore untamed inflation will steadily erode consumer demand with serious consequences for industrial capacity utilisation and ultimately employment.

Consequently, the committee recommended that CBN should maintain the deterrent/punitive 13 percent current interest rate on those loans which commercial banks seek from the Apex Bank to meet their urgent cash requirements. Thus, the banks are in turn ‘forced’ to charge higher interest rates of 20percent plus on loans to borrowers which include the critical operators who can provide employment opportunities in the real sector.

Ironically, higher cost of funds also promote higher production costs and ultimately increase prices of goods and services to fuel the rate of inflation, and thwart the efforts of the CBN to establish price stability in the market.
Conversely, in the absence of the traditional suffocating Naira surplus, and the attendant threat of inflation, CBN could, irrespective of the level of crude price/revenue, effortlessly reduce the cost of its loans to banks to below 2percentas  robust and more successful economies elsewhere do to encourage production and economic growth.  Thus, with a low policy rate, interest on bank loans would correspondingly fall below 10percentwithout any need for CBN’s unheeded ‘hypocritical’ sermons to banks to reduce interest rates. Similarly, projects in the agricultural value chain would also attract below 3percent interest rates; better still, a more level playing field would be created for all sectors to grow and create increasingly more jobs.

Clearly, the committee’s reiteration of their standing recommendations for the sustenance of the current mandatory sequestering of, or requirement to keep significant percentages of bank deposits as idle funds, have clearly failed as a strategy to bring down inflation to international best practice levels below 2percent and sustain consumer demand. Ironically, the committee’s recommendations clearly also go against the grain of an apparent shortage of cheap loanable funds to jump-start the real sector, particularly the small and medium Enterprise subsector. Clearly, after about a year’s practice, indications are that the strategy of high monetary policy rate of 13percentand equally abnormally high cash reserve ratios have also failed, as cost of funds remain well in excess of 20percent while inflation inches steadily towards the oppressive level of 9percent! Thus, the MPC’s recommendations are therefore clearly antisocial and antagonistic to industrial and economic growth and should therefore be urgently jettisoned.
A continuously weakening Naira (even when reserves exceeded $50bn dollars) and the current wide gap of N20 per dollar between interbank and bureau de change rates is an unmistakable indication of an unyielding trust deficit in the Naira as a store of value.  Clearly, the CBN and MPC have continued to tackle symptoms rather than the actual cause of the systemic surplus Naira which is obviously induced whenever CBN deliberately substitutes fresh Naira creations as allocations for monthly distributable dollar revenue. Sadly, the Naira will undoubtedly continue to depreciate with systemic excess liquidity induced by CBN and MPC's misguided strategy and the economy will inevitably become increasingly dollarized if this payments system subsists.