This column has consistently maintained that the root cause of Nigeria’s economic paradox of increasing income, with unbridled unemployment rate, and deepening poverty will be found in the conscious but incorrect adoption of a faulty and distortional process for the infusion of our crude oil export dollar revenue.

Hereafter, we will discuss the related adverse consequences of the Current Payments Model against the POSITIVE attributes of the Advocated Payments Model for the allocation, for example, of $1bn export revenue in the following explanatory steps.

Thus, in CPM: -1 The Central Bank of Nigeria unilaterally determines the naira exchange rate and thereafter unconstitutionally captures the distributable $1bn revenue and prints/creates in replacement (read as monetises) N200bn as statutory allocations, which are then domiciled in the bank accounts of beneficiaries.

CPM:-2 If, however, the CBN’s mandatory Cash Reserve Ratio for banks is, for example, 10 per cent, the N200bn inflow can be leveraged tenfold, to create additional credit and expand consumer spending power which will invariably fuel inflation. The recent establishment of the Treasury Single Account will, regrettably, only temporarily, absorb such cash injections, as the N200bn allocation, for example, will ultimately migrate when spent into private sector bank accounts and invariably expand naira liquidity, banks’ credit capacity and consumer demand.

CPM:-3 In response to evolving inflationary threats, the same CBN, ironically, “altruistically” sells Treasury bills and borrows money it does not need, often, at over 10 per cent, just to combat the challenges of systemic excess naira and excessive consumer demand! Inexplicably, however, despite the crying need of the real sector for cheap funds, these CBN borrowings are simply kept as idle funds, while fresh cash interventions are created to stimulate sectors of the economy, despite the subsisting systemic liquidity challenge.

CPM:-4. Since unrestrained access to excess cheap funds instigates spiralling inflation with adverse economic and social consequences, the CBN responds by raising its Monetary Policy (Control) Rate to force banks to also significantly increase their own lending rates, so that higher cost of funds would discourage borrowing, and sadly, inadvertently also reduce any prospect of industrial growth and job creation. Thus, the CBN unexpectedly becomes vicariously liable for the very high cost of funds that cripple the real sector.

CPM:-5. Meanwhile, Ministries and state governments, who require imports to enhance social infrastructure become constrained to buy back their earlier captured dollars at a higher regulated rate from banks that strangely become the prime beneficiaries of the CBN’s dollar auctions. Ultimately, naira exchange rate comes under threat as increasingly surplus naira is unleashed by the CBN to chase the dollar rations it regularly auctions. Consequently, the market dynamics of demand and supply become unfavourably skewed against the naira, despite the CBN’s custody of relatively impressive “reserves.”

CPM:-6. The less dollars sold, the larger will be the CBN’s purported reserves, but the weaker ironically also will be the naira rate, as less and less dollars become pitted against the excess naira that the CBN earlier instigated. Ultimately, the gap between official and black market naira rates will invariably widen, to provide irresistible opportunities for speculation, hoarding and currency round tripping.

CPM:-7. In order to reduce the gap between parallel market and official exchange rates, the CBN commits the unforced error of allocating dollars to the Bureaux de Change, who in turn fund the requirements of treasury looters and smugglers of contrabands, not minding the adverse economic impact of such misguided dollar allocations; (thankfully, after seven long years the CBN terminated this clearly obnoxious strategy of official dollar sales to the BDCs in January 2016).

CPM:-8. The CBN, ironically, continues to maintain its monopoly of the forex market and sits on bountiful naira and dollar reserves, while domestic and external debt accumulation and deepening poverty, inexplicably, persists, while banks unexpectedly simultaneously celebrate bountiful profits.

Conversely the Advocated Payments Model will turn around the existing counterproductive process and operate as follows:

APM:-1. The same $1bn distributable revenue is not immediately substituted with N200bn allocation; instead, constitutional beneficiaries receive dollar certificates equal to their respective allocations, while the actual $1bn remains domiciled in the CBN, while the naira exchange rate is conversely determined by competitive market forces of demand and supply.

APM:-2. With strictly dollar allocations, the $1bn income does not translate to additional FRESH naira inflow; consequently, naira supply remains the same, and cannot therefore further instigate the usual disenabling spectre of systemic surplus cash which fuels inflationary consequences.

APM:-3. Without the usual systemic naira surplus, the CBN does not have to mop up liquidity by borrowing money it does not need, often with interest rates above 10 per cent. Consequently, the present N12tn ($60bn) oppressive debt and related service charges will become restrained. Additionally, reduced government borrowing will also naturally force commercial banks to chase the real sector for business and promote economic growth.

APM:-4. Furthermore, with optimal naira liquidity, the CBN can gradually align its Monetary Policy (control) Rate to international best practice below three per cent; commercial banks will also, without persuasion, correspondingly drop lending rates across board to single digit, to attract real sector borrowers.

APM:-5. The MDAs and state governments can directly exchange for naira, all or portions of their dollar allocations from time to time, through commercial banks. Thus, in the absence of the usual naira surge when the CBN substitutes fresh naira creations for dollar revenue, market dynamics will inevitably change to favour the naira, with relatively more dollar supply chasing the existing stable naira balances. A stronger naira rate will expectedly reduce production cost and also lower fuel prices to make subsidy totally unnecessary. Furthermore, a 10 per cent sales tax on cheaper petrol and kerosene could favourably consolidate over N1000bn annually into the treasury.

APM:-6. The CBN’s usual monopolistic dollar auctions will cease, as the constitutional beneficiaries directly trade their dollar certificates for existing naira balances with banks before spending, (since the dollar is not legal tender in Nigeria). Nonetheless, the dollars will remain domiciled with the CBN, irrespective of the ultimate buyer, until the apex bank receives appropriate instruction from respective banks to directly pay overseas suppliers of “authorised” goods/services, from the dollar balances in the accounts, banks maintain with the CBN. This payment process certainly provides a more transparent usage of funds than presently.

APM:-7. With optimal naira liquidity and relative dollar surplus, the naira rate will gradually improve, and stabilise and promote the perception of naira as a safe store of value. Furthermore, with little motivation for round tripping, capital flight and speculative dollar purchases, the black market for the dollar will rapidly contract.

APM: 8. Optimal naira liquidity will invariably precipitate lower MPR, and therefore promote single digit interest and inflation rates below three per cent, with positive knock-on impact on consumer demand, industrial consolidation as well as increasing job opportunities, with bourgeoning economic prosperity. A stronger naira will similarly drive down fuel prices and ultimately eliminate annual oppressive subsidies.

Sadly, the patriotic and rational fervour evident in President Muhammadu Buhari’s recent affirmation, at a meeting with the Nigerian community in Kenya, that he did not see any valid reason to further devalue the naira, may ultimately come to nothing if the increasing pressure from local and international experts and powerful interest groups persists and the gap between official and parallel exchange rates further widens.

In conclusion, therefore, the present payment system will shunt us back to the Fourth World, while the advocated model will propel us amongst the top world economies within a decade. Clearly, our fate as a nation is not in our stars, but obviously in the choices we make.

President Buhari, it is time to sack the CBN governor and to replace him with HENRY BOYO asap!

The era of using former bank M.Ds to head CBN should be over! you wouldnt expect them to create policies that would hurt their constituency. Banks are making fantastic profits off this currency mishap because their man is at the top. Let there be CHANGE!

kingviny:
President Buhari, it is time to sack the CBN governor and to replace him with HENRY BOYO asap!

The era of using former bank M.Ds to head CBN should be over! you wouldnt expect them to create policies that would hurt their constituency. Banks are making fantastic profits off this currency mishap because their man is at the top. Let there be CHANGE!

Unfortunately for you, the president lacks the powers yo sack the CBN governor.

Sunnybobo3:


Unfortunately for you, the president lacks the powers yo sack the CBN governor.

you mean the president that doesnt obey court orders lacks the powers to sack the CBN governor? U lie my brother.

If there have been no projects and initiatives announced in

agriculture
power
industry
the CBN
Aviation
Defense
Water
Finance

do you think the problem is the CBN governor...Or the president

Ofodirinwa:
If there have been no projects and initiatives announced in

agriculture
power
industry
the CBN
Aviation
Defense
Water
Finance

do you think the problem is the CBN governor...Or the president

OIL AND LFR
[b] THE TWO MAIN MEANS OF INCOME FOR NIGERIA ECONOMY
[b].....with the determination of Nigeria president Buhari and the trust of of world leaders toward nigeria, from America, Eroupe, Asia and gulf nation the down price of oil and the rise in $ is not a corse to nigeria but a blessing.
Among the oil producing countries, and OPEC only nigeria have what other didn't, we have oil in common but nigeria have the looters as well, this opportunity raise nigeria above other oil nation and when all this country are frustrated with oil down price, nigeria have turn to her looted fund reserved to keep her economy running.
Nigeria is bless with oil and (LFR) looted fund reserve, when the oil price is down, the rise-up of dollar $ hike the value of our LFR, if government inject the LFR recovered on the economy, it will boot our economy!
at rate of $ to ₦ today if government managed to recovered $1 trillion LFR it will give us:

$1=₦400, $1trillion=₦400trillion!
I hereby challenge the Nigeria economists who insist that rising $ and downwards of oil price is a broke to nigeria economy to come-up for debate!
Note (LFR is looted fund reserve)[/b]

What Boyo is saying effectively amounts to devaluation or rate flexibility.

There's nothing novel there.

oyinkinola:


OIL AND LFR
[b] THE TWO MAIN MEANS OF INCOME FOR NIGERIA ECONOMY
[b].....with the determination of Nigeria president Buhari and the trust of of world leaders toward nigeria, from America, Eroupe, Asia and gulf nation the down price of oil and the rise in $ is not a corse to nigeria but a blessing.
Among the oil producing countries, and OPEC only nigeria have what other didn't, we have oil in common but nigeria have the looters as well, this opportunity raise nigeria above other oil nation and when all this country are frustrated with oil down price, nigeria have turn to her looted fund reserved to keep her economy running.
Nigeria is bless with oil and (LFR) looted fund reserve, when the oil price is down, the rise-up of dollar $ hike the value of our LFR, if government inject the LFR recovered on the economy, it will boot our economy!
at rate of $ to ₦ today if government managed to recovered $1 trillion LFR it will give us:

$1=₦400, $1trillion=₦400trillion!
I hereby challenge the Nigeria economists who insist that rising $ and downwards of oil price is a broke to nigeria economy to come-up for debate!
Note (LFR is looted fund reserve)[/b]

1. All looted funds cannot amount to $1tr

2. If you convert looted dollar to naira, there will be excess naira liquidity in the system and this will lead to inflation.

Stop populating threads with this your concept, it is good you are thinking even though it is at tangent to reality.

Activa:
What Boyo is saying effectively amounts to devaluation or rate flexibility.

There's nothing novel there.

Do you have something better? how would these effective monetary and fiscal policies proposed by Mr. Boyo cause devaluation? please explain. This country sef!

kingviny:


Do you have something better? how would these effective monetary and fiscal policies proposed by Mr. Boyo cause devaluation? please explain. This country sef!

Why are u sounding exasperated?

When states sell their dollars to BDCs and banks directly, the rate would be market-determined and the naira would fall below the current 'fixed' official exchange rate.

It's also not true, as opined by Boyo, that the cbn currently prints naira to give to the states in exchange for their dollars. Do u want an explanation of this too?

Activa:


Why are u sounding exasperated?

When states sell their dollars to BDCs and banks directly, the rate would be market-determined and the naira would fall below the current 'fixed' official exchange rate.

It's also not true, as opined by Boyo, that the cbn currently prints naira to give to the states in exchange for their dollars. Do u want an explanation of this too?

I am not, but as for me, I will only condemn when I have a better idea to contribute. On the contrary, you merely rubbished the contributory effort of this eminent economist and then came up with an opinion that is the root course of our problem.

Excess naira liquidity as a result of this dollar mis-use internally is the major cause of our problem.

All dollar earnings should be held in the reserve to finance legitimate imports and to defend the naira, it is not be shared by government tiers. There is enough of naira in circulation already and state government should only earn and spend in naira afterall they collect taxes in naira. Even if they have dollar share from the national patrimony, they should only be given dollar certifcates while the CBN should still hold the real dollar in the nation's vault. They should only exchange such certificates thru CBN when they need to import for capital projects.

In as much as CBN can meet up with all dollar demands, naira will always be protected. Give the dollars to the governors and most of them will develop wings. Change it to naira and give it to them (which is what CBN has been doing hitherto) and face excess naira liquidity which will in turn lead to inflation etc.

kingviny:


I am not, but as for me, I will only condemn when I have a better idea to contribute. On the contrary, you merely rubbished the contributory effort of this eminent economist and then came up with an opinion that is the root course of our problem.

Excess naira liquidity as a result of this dollar mis-use internally is the major cause of our problem.

All dollar earnings should be held in the reserve to finance legitimate imports and to defend the naira, it is not be shared by government tiers. There is enough of naira in circulation already and state government should only earn and spend in naira afterall they collect taxes in naira. Even if they have dollar share from the national patrimony, they should only be given dollar certifcates while the CBN should still hold the real dollar in the nation's vault. They should only exchange such certificates thru CBN when they need to import for capital projects.

In as much as CBN can meet up with all dollar demands, naira will always be protected. Give the dollars to the governors and most of them will develop wings. Change it to naira and give it to them (which is what CBN has been doing hitherto) and face excess naira liquidity which will in turn lead to inflation etc.

Your passion is good but you and Boyo are mixing up one important issue.

1. The cbn does not print naira to credit the states for their share of the crude oil exports.

2. So where does the naira come from? When cbn sells the dollars (from the foreign reserves or crude oil exports) to importers through the banks, the cbn receives naira equivalent from them. It is this naira that goes to the states and FG. It's a cycle. There's no excess liquidity anywhere. Try and think through this or mail Boyo to comment on this.

3. How can you protect the naira when the average monthly demand from importers is over $3.5b and supply is $1b?

4. Why I said Boyo's idea is not novel is because it's what we're essentially doing except that all tiers of govt are 'compelled' to sell to the cbn at the official rate. If the cbn floats the rate, naira will depreciate and dollar scarcity may abate. This is also what would happen if we adopt Boyo's long route of dollar certificates to states. States would sell the certificates to banks at a market-determined rate and the naira will depreciate.

5. It's not all the naira in circulation that belongs to the states. This is another wrong assumption in your analysis.

989900:



I pushed for Boyo as minister of finance in an earlier topic of mine last year.

I wonder what makes Kemi Adeosun a more useful option, asides from political affiliation.

Henry Boyo has criticised the CBN'S management of our foreign exchange earnings. If we are to offer him a job so as to implement his ideas, he should take over from Emefiele as CBN governor and not as finance minister.

All just written in colourful repetitive language to impress illiterates

Activa:
What Boyo is saying effectively amounts to devaluation or rate flexibility.

There's nothing novel there.

I really thought economists like Mr Boyo would be part of the administration's economic and fiscal management team (that's if there is) given the nose-dive in the price of the country's major revenue earner.

Wishful thinking.

kingviny:


Do you have something better? how would these effective monetary and fiscal policies proposed by Mr. Boyo cause devaluation? please explain. This country sef!

I've already explained.

kingviny:
President Buhari, it is time to sack the CBN governor and to replace him with HENRY BOYO asap!

The era of using former bank M.Ds to head CBN should be over! you wouldnt expect them to create policies that would hurt their constituency. Banks are making fantastic profits off this currency mishap because their man is at the top. Let there be CHANGE!

Boyo is yet to clearly explain himself. His option is riddled with gaps and wrong assumptions.

If it were that easy...