Beyond greenbacks, the naira as store of value, By Uddin Ifeanyi


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The huddle was summoned sometime in the morning on June 6, 2014. The day before, the newly appointed governor of the Central Bank of Nigeria (CBN) unveiled his 10-point agenda at a “world press conference”. Christened a “maiden address”, the optics felt ever so much like part of the rites associated with the commencement of tenure by state governors. And we know what comes of those. Thus, for the apex monetary policymaker to have opted for this style was vexing. In addition, the address rambled. The huddle was, however, exercised more by Mr. Godwin Ifeanyichukwu Emefiele’s struggle to include the promotion of “sustainable economic development” amongst his principal tasks as central bank governor. True, he did make the point that “price stability can rarely be adjudged a goal in itself except cast against the ultimate objective of improvement in the quality of life”.

But the meeting that Friday adjourned on the conclusion that under a central bank leadership so muddle-headed, domestic prices (the stability of which is the principal object of the CBN) were going to labour

and the naira fare poorly. On account of this, it was decided that members should transfer their wealth out of the naira into safer havens. Mathew 6:19’s injunction not to store one’s “treasures where moths and vermin destroy, and where thieves break in and steal” was the operant consideration. The general agreement was that a moth was in the house! An influential member of the huddle, then a bank treasurer, began building his haul of greenbacks that afternoon — at an exchange rate of US$1:N155. There was an offsetting argument, though. Simply put, if we did not think the new CBN governor competent enough to keep both inflation and the naira’s exchange rate stable, then keeping one’s treasures in dollars made sense only if one could move the wealth store offshore.

Would keeping one’s treasure in domiciliary accounts in Nigerian banks make sense, especially when these banks were going to come under the cackhanded influence of the new sheriff? The decision in late 2001 by Domingo Cavallo, then Argentina’s Minister of Economy, to limit cash withdrawals to 300 Argentine pesos a week, and to ban withdrawals from dollar-denominated accounts except the account holders were willing to be paid in pesos at the official exchange rate was the nightmare that this question sought to deal with. In the end, the last of the participants at that meeting to convert his naira savings into dollars did so only after Mr. Emefiele’s pursuit of a policy of fiscal repression offered to recompense savings at levels considerably below the inflation rate. He bought his first dollars at US$1:N445.

The incumbent federal government’s appointment of a new central bank governor has reprised June 2014. We have, once again, a governor of the Nigerian central bank who thinks his bailiwick is to grow the economy. I haven’t been able to reconvene the huddle. But I have consulted the now former bank treasurer. His take? Our conversation ended with him quoting Jean-Baptiste Alphonse Karr: “Plus ça change, plus c’est la même chose”! Yet, coincidence isn’t destiny. And so, it helps to restate the huddle’s definition of the problem 9 years ago.

First, the supply and demand for US dollars is a concern of that country’s Federal Reserve system. And we have seen how, as part of its battle against domestic inflation, the Fed has raised interest rates and boosted global demand for dollars. By extension, the supply and demand of the naira ought to be the primary concern of the Central Bank of Nigeria. Yet, in conversations on how to fix the country’s monetary policy difficulties, an unhealthy obsession with the greenback prevails. Sadly, the recommendations ranging from looking for ways to stymie the demand for dollars

including through legislating the consumption of only made in Nigeria fare

to boosting exports in order to earn more dollars all define the problem in bully pulpit terms.

Yet, the question to which managers of the economy are invited to answer is why Nigerians are loth to hold the naira? The answer to this question has as much to do with the American currency as had to do with the naira’s depreciation. For when Mr. Emefiele embarked on another of his innumerable madcap clampdowns, domestic assets moved into bitcoins in large sums. Today, were I to deposit N100 in a bank account, at the end of a year, my deposit would be worth N75 in real terms — that is after compensating for the headline inflation rate. And before accounting for a riot of bank charges. Convert the same sum to dollars and leave it in a bank account, however, and you not only hedge against inflation, but stand to reap exchange gains from a falling naira.

A currency

US dollars, pound sterling, or naira — must fulfil three functions: serve as an accounting unit; a means of exchange; and a store of value. Between the Godwin Emefiele-led Central Bank of Nigeria and the Muhammad Buhari-led federal government, the naira gave up the last of these attributes

in part because Mr. Emefiele glad-handed monies to Mr. Buhari’s spendthrift government. Between the Mr. ‘Yemi Cardoso-led Central Bank of Nigeria and the Mr. ‘Bola Ahmed Tinubu-led federal government, the prayer is that they do not eat away the second of the naira’s attributes. Meanwhile, members of the huddle will continue to hedge against paying the domestic economy’s idiot risk premium.

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.








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