Sunday, February 21, 2016

Clarity of thinking, by Nigeria's Sanusi

1. Exchange-rate talk has moved from the province of traders and bankers to...well, everybody: hairdressers, taxi-drivers, and the denizens of Naija-Twitter.  This is how somebody put it:

Charts: "Official exchange rate" and "exchange rate", click for sources: ,
USD/NGN Fixed at ~198 since Q1 2015

but doesn't stop the real rate from marching along.  Will arbitrage happen?  Oh Yes.

2. Meanwhile, respected former head of Nigeria's Central Bank Lamido Sanusi has said [to the BBC that] the government should end its policy of trying to maintain the value of the currency, the Naira...the drawbacks of the policy far outweigh its dubious benefits.
How so? (Source)
  • “This argument (on devaluation) I think has first of all been framed wrong, it’s not an argument about do we devalue or do we not devalue. The Naira has already been devalued,” he said.
  • “What is the value of the Naira? It’s what you can get for it, what you can get for the dollar in a free market between a willing buyer and a willing seller – and it is not 197.
  • “All that is happening is that the government has chosen to sell its own dollars at a subsidised rate to the private sector. That’s what is happening. So, if you’re lucky, you’d get something worth N300 for N200 and you save N100,” Sanusi added.
  • He explained that, “for every $1 billion that the Central Bank sells, it has transloaded N100 billion to the private sector – that’s what is happening.
  • “So you got a huge arbitrage opportunity, which either way undermines the government’s anti-corruption stance.
  • “You also take so much money away from states and local governments, because this is money that from oil proceeds, from PPT, royalties, that should go to education and healthcare for the poor.
  • “While the president is looking at the pain inflicted on the poor, by high prices of import, he also needs to look at the pain inflicted on them by taking away revenue that could go into education and healthcare.”
( Hey, I'm no former Central Bank Governor, but #IStandWithLogic  )
I'd listen to Grisha (Perelman) if I were you

While commending the President for transparency, removal of subsidy and other structural reforms, Sanusi said the Federal Government needs clarity of thinking in the handling of the foreign exchange policy.

“There has to be clarity of thinking. The government on the one hand says it wants to encourage domestic production, the Governor of the Central Bank says he wants to reduce import dependence, but one would think that the way to reduce import dependence is not to make imports cheaper.
“You subsidize exchange rate – you’re making imports cheap. So you’re actually pursuing a monetary policy that undermines structural objectives,” he said.

Also commending the Goodluck Jonathan administration, [Sanusi] said that the huge corruption that trailed that government was unprecedented, noting that systems have to be put in place to make it difficult for future leaders to steal:

“The thinking that has to be done is beyond looking for these people, beyond recovering the money, beyond prosecuting them. “What kind of institutional changes do we need to have in processes, in systems, that would make it impossible for the next president to do the kinds of things done in the past”, he said.

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Previously on UpNaira