To ensure the best practice management of the naira for national prosperity is a task that must be done. Meanwhile the Monetary Policy Committee of the Central Bank of Nigeria has held 296 meetings since the inception of the apex bank as at last July, but it has not been able to achieve price stability, one of the principal objects of the CBN, especially since 1975. That is because the effects of the so-called homegrown heterodox fiscal and monetary procedures permeated the economy.

Inflationary pressures arise from FAAC monthly direct addition to M1 and M2 money stock of fiat printed naira funds in place of Federation Account oil and gas export proceeds. Recall, first, that beginning from mid-1975 till date oil and gas export proceeds have accounted for over 50 per cent of Federation Account disbursements; and second, that the Obasanjo military regime (1976-79) made the CBN to always withhold Federation Account export receipts and to replace them with fiat printed naira funds.

That analytically meant apex bank deficit financing of FAAC disbursements to the tune of over 50 per cent. Subsequent federal administrations till date have adopted the Obasanjo say-so. That represents the original FG bad governance decision. To illustrate, at its July meeting, the MPC met June 2024 inflation rate of 34.19 percent compared to the CBN’s price stability mandate of 0-3 per cent considering the fact that the annual Appropriation Act limits FG to a fiscal deficit ceiling of 3.0 per cent of GDP.

Purportedly to bring inflation under control, the MPC continued with a tight monetary stance by raising the monetary policy rate to 26.75 percent. The ensuing high bank lending rates discourage new investments as well as cause some existing businesses to fold up. Although the high June inflation rate implied that the M1 and M2 money stock already in place was above the optimal level, subsequent rounds of FAAC disbursements would further swell the money supply.

Worse still, through the MPR-in-a-corridor the CBN would increase the bloated money stock by again printing fiat naira funds to compensate deposit money banks by way of standing deposit facility payments for bank loanable funds that are leftover. These inflationary and anti-growth conditions have long become entrenched Obasanjo-legacy economic features. The economic illiteracy exhibited in the legacy of preferring Federation Account dollars and spiting the naira has proved very costly, namely, First, after the 1971-79 oil boom decade, Nigeria missed becoming a First World economy by 2000 but instead became the poverty capital of the world beginning in May 2018.

Second, the country has been operating a dollarised and artificial multiple exchange rate system. The resultant harsh economic outcome has forced the youths to flee abroad in droves for jobs. Third, in a desperate search for a solution, advocacy for FG to print naira to spend as a means to exit recession and/or to achieve prosperity instead has ended up creating mass economic hardship. In a celebratory mood recently, the FG offered a minimum monthly wage of N70,000 at a time when the naira/dollar exchange rate made it to be worth less than a single eight-hour day minimum wage elsewhere.

Fourth, the notion that to make the naira/dollar exchange rate dirt cheap would promote exports appears instead to be wiping out domestic agricultural and remnant industrial production altogether thereby leaving the populace hungry and angry.

In short, FG, the exclusive monetary authority, causes the ever-worsening economic pain. It is therefore urgent for the Federal Ministry of Finance and the Central Bank of Nigeria to collaborate by abiding by economic principles and best practice, namely, one, the CBN is a regulator, the bankers’ bank and the bank of last resort for naira funds notwithstanding its literally stated role under Section 2(e) of the CBN Act 2007. Two, it is not inflationary when governments expend realised revenue since the funds are derived from the existing M1 and M2 money stock.

Three, dollar accruals to the Federation Account will impact the economy beneficially like true export inflows if and only if the receipts undergo the intermediation of the banks of first instance. To convert foreign currency to naira funds, these banks first utilise the existing M1 and M2 money stock and sell the forex to the apex bank for additional naira supply as a last resort. Four, FA dollar receipts are not in legal tender and should remain untouched in the CBN vaults (just as Obasanjo desired). But FAAC dollar allocations should be credited nominally into the apex bank dollar accounts of the beneficiaries (FG, States and Local Governments).

In order to prevent dollarisation and looting of raw dollar allocations, FAAC beneficiaries should be issued with apex bank dollar account balance statements monthly for conversion to realised naira revenue. For the beneficial economy-wide market-reflective single exchange rate, FA beneficiaries and all private sector dollar holders should transact and convert their dollar funds including Diaspora remittances into legal tender naira funds by means of the single forex market (SFM) system. (Ditto for World Bank and bilateral hard currency loans.)

Multiple currency practice is a heterodox measure intended for private sector exporters to retain their export earnings in domiciliary forex accounts for their exclusive use (by the individual account holders). That intention contravenes a basic banking function. Just like FA dollar receipts, private sector export earnings are not in legal tender and so should comply with Section 2(b) of the CBN Act 2007. Again, to prevent dollarisation, forex funds in domiciliary accounts, upon receipt, should be transacted and converted into naira amounts within the shortest possible time via the SFM. Under the SM system, the CBN does not allocate foreign exchange to any entity. Individuals and businesses, etc, do have access to purchase forex for legitimate use on demand through their banks. However, the volume of demand should be controlled by placing forex access tax and discriminatory tariffs on imported goods and services.

The tariffs and/or whatever should reflect the prioritised needs of the economy. The essence of deploying tariffs/excise levies, etc, is not primarily to generate FA revenue, but rather to serve the purpose for protecting full employment in domestic agricultural and manufacturing industries and various services. The foregoing will stem further economic deterioration and launch the country on the firm path to irreversible prosperity.
0jomaikre is an Economic Analyst. He can be reached via: [email protected]