OPEN LETTER TO NIGERIA’S CBN GOVERNOR.

It is no more news that our beloved country is experiencing immense inflation. Prices of commodities have skyrocketed over the period of the Buhari’s administration. Standard of living of Nigerians have reduced drastically since there is no commensurate increase in income.
The big question is: what is the cause of this inflation and what is an urgent measure to curb it?
The obvious cause is the massive reduction in the value of the naira which currently trades at about 500 naira to a dollar in the parallel market and about 302 naira to a dollar officially. Nigeria is an import dependent country, most commodities are imported. The high exchange rate implies very high cost of imported goods. The goods we manage to produce such as food products are also sold at a very high price because of the high cost of transportation since the petroleum product for transportation is also imported.

In previous regimes, the CBN adopted the fixed foreign exchange policy in which the price of the naira is fixed at about 198 to a dollar. The foreign reserves is used to maintain the exchange rate at the fixed value, implying a decline in the reserves. However, the current CBN administration introduced the floating exchange rate regime in which the forces of demand and supply determines the value of the naira. With this policy, the reserves does not deplete, in fact there are news of an increasing reserve lately. But the exchange rate of the naira to the dollar experienced continual increase, leading to its present rate.

The big question is, which is a priority: A big foreign reserve or a well valued currency? This can be likened to a man wallowing in hunger but has millions has savings in his bank account. He may not even live long enough to enjoy his savings.

My position: The CBN should immediately reverse to the fixed foreign exchange policy and watch inflation rate drop. The recent stability in oil production and increase in oil price will cushion the effect of depleting reserves. This should be done with a strong drive for diversification of the economy.

By: Tolu Oke