By: Sir Henry Olujimi Boyo (Les Leba), first published in May 2005


Today’s article is part two in the “Dollar Certificates…” series, the first of which was republished last week Monday. To briefly recap, the first article discussed: the advantages of a liberalized foreign exchange system in which we do NOT convert dollar derived revenue to Naira for the payment of statutory allocations- an act that leads to a gross devaluation of the Naira. If you missed this article, you can find it by using the link listed below.

Part 2 in this series focuses on a proposal that aims to increase the value of the naira, making it more profitable for businesses to operate and thrive, which will, in turn, reduce unemployment, increase our standard of living, and enable Nigeria to develop both its public and private sectors for a more prosperous future where it becomes preferable to hold the naira instead of the dollar. The article provides a practical step-by-step breakdown of how this proposal can be adopted. Kindly read on.

(See www.betternaijanow.comfort this series and more articles by the Late Sir Henry Boyo)

Last week, we discussed our proposal for the infusion of the Nation’s dollar revenue into the monetary system through the monthly issuance of registered dollar certificates to beneficiaries of the federation pool, instead of a continuation of the present system, where the dollar revenue is, first of all, converted at a unilaterally declared rate by the CBN (Central Bank of Nigeria) before sharing to beneficiaries of the federation pool. In this event, state and other constitutional beneficiaries who need to pay for imports of plant and machinery for internal development would seek to convert the same naira back to dollars at exchange rates which carry a silent tax of over 25% on the rate adopted by the CBN for the initial conversion of the disbursal monthly dollar revenue.

The response to the proposal for breaking the monopoly of the CBN on the foreign exchange market was generally positive, but some analysts were concerned that, despite the enormous advantages and the positive impact which a liberalised foreign exchange market will bring to our economy and the welfare of the masses at large, the system may tend to dollarize the Nigerian economy! In this event, I need to assure readers of this solemn that I am a proud and patriotic Nigerian and the battle against the dollarisation of the economy is one that I have engaged in for the past almost three years! Our economy is already dollarized at the moment and our proposal is aimed at nairanising it. In other words, our proposal will make it more attractive for people to want to hold their money in naira rather than dollars. Indeed, no physical payment of dollar cash is involved in the system proposed. The beneficiaries would have to separately negotiate a naira rate for their certificates with a commercial bank operating in Nigeria. Furthermore, the commercial bank does not acquire a cash dollar sum, but only receives credit in its dollar account with the CBN. The dollars remain in the coffers of the CBN and foreign suppliers are paid from the CBN pool rather than the current system of scattering the dollar revenue twice a week into over 85 correspondent banks abroad and the attendant loopholes for round-tripping and other sharp practices.

In order to dispel any fears about the possibility ofdollarising the Nigerian economy by the adoption of our proposal, it is necessary to reproduce an excerpt from a paper titled “A LIBERALISED FOREIGN EXCHANGE MARKET, a proposal for a liberalised foreign exchange market in Nigeria and its economic benefits”. In this excerpt, we examine the operational procedure of the proposed liberalised foreign exchange market.

3.2 OPERATION OF FOREX MARKET IN A LIBERALIZED SYSTEM The current market structure creates a system where too much naira always ‘appears’ to be chasing the too few dollars available. Such a system can only result in a continuous downward slide in the value of the naira vis-à-vis other stable and convertible currencies because by the nature of this system the available dollars will no matter the quantum always continue to remain TOO FEW since its control and disbursement remain in the same hands that also control the volume of our own naira in circulation! A case of a prosecutor and defender being one and the same person!

3.3 HOW THE MARKET WILL OPERATE The CBN will consolidate the distributable portion of the dollar earnings monthly (or at worst bi-monthly) in arrears. The realizable values will be published in appropriate government bulletins monthly.

3.3.1 The CBN would issue warrants denominated in dollars monthly without fail to each beneficiary of federally derived dollar revenue according to constitutional provisions with regard to sharing of such revenue.

3.3.2 The beneficiary of the dollar certificate (strictly not cash) (federal, state, local governments, statutory agencies etc.)will approach their separate bankers with their dollar certificates for conversion of all or part of the dollar certificate into naira for its corporate budgetary obligations which cannot be paid in dollars (since the dollar is not legal tender in Nigeria)

3.3.3 All buying and selling of currencies will be carried out through a bank or any other such denominated financial institution. The local bank officer on receipt of the request would seek current rate confirmation from its head office before concluding a deal. In any event, all banks now have improved telecom/online access with their head offices!

3.3.4 The local branch of each bank would be required to display the daily exchange rates of major currencies against the naira in their branch after the receipt of the certified daily/hourly advice from the forex department at the head office of his bank.

3.3.5 The CBN’s ruling rate on any particular day will be determined by the weighted average of various negotiated prices on a preceding day. A true naira rate would emerge from the aggregates of rates adopted in all such exchange transactions in the federation. Negotiated naira buying and selling prices of dollar from the numerous outlets or sources would stabilize within a narrow band and produce an effective market-determined naira exchange rate made up of the composite or weighted average of various prices.

3.3.6 The rate that would emerge would be dependent on the CBN’s management of the naira supply in the economy through the various traditional instruments which had remained ineffective and counterproductive in the past – viz: - Minimum Rediscount Rate - Commercial Bank Liquidity Ratio - Treasury Bill Issue - Asset Ratios etc., etc., etc.

3.3.7 This system will create a scenario where too many dollars ‘appear’ to be chasing too few naira as the CBN guides the value of the naira towards a level that would be consistent with dignified expectation through appropriate regulations and fine-tuning of traditional Central Bank instruments worldwide – without jeopardizing liquidity and the adoption of other drastic measures (such as high MRR etc.) which are retrogressive to the economy to tame sham excess liquidity! A realistic and stable exchange rate would drastically check inflation and encourage industrial capacity utilization and expansion.

The above excerpt is the kernel of our proposal for a liberalised foreign exchange market. However, one may expect that keen analysts would want to know and evaluate the process for establishing import orders and payment of same. This aspect will be discussed in this column next week, but it is pertinent to note that my colleague and I have successfully defended our proposals at various forums over the last three years, however, the CBN responded that they only carry out but don’t make policies, (NISER) National Institute for Social & Economic Research claims our proposal is unconstitutional. The National Economic Summit Group said we were putting the cart before the horse; The National Economic Intelligence Committee was irritated that we had also provided copies of our paper to the CBN Governor and also the Presidency and consequently foreclosed any collaboration with us.

In addition, we have addressed a press conference called at our own expense at the Excellence Hotel Ogba in November last year and over 2000 copies of our paper have been circulated among major stakeholders in the public and private sectors including the Chairmen of various National Assembly Committees and the current Political Confab members. So far, responses from those quarters have been a curious silence.

Save the Naira, Save Nigeria!