Economy: Token measures will not do – Part 3
Being the regulator, CBN is the naira seller of last resort as well as the dollar buyer of last resort strictly at the behest of and via DMBs. Repeat: (A) CBN does not deal directly with importers and exporters inclusive of the oil-exporting FA beneficiaries. (B) The price (value) of a currency (for example, the face value of any coin) is as approved by the issuing authority. Therefore, SFM transaction prices should only attract a set commission (which should be as low as possible preferably not exceeding 0.5 per cent) for broker DMBs and completely shorn of any additional profiteering charges that could shoot up the cost of production and inflation.
Supply of forex to the SFM would come from all forms of export inclusive of (i) export proceeds and otherwise acquired or inflows of forex. (ii) There exist such proceeds amounting to over $20 billion (as of 2016) being wrongly and indefinitely kept in forex domiciliary accounts. These funds should be transacted in the SFM within at most 30 days as proposed by the NLRC in obedience to Section 2(b) of CBN Act 2007, which invests primacy on the national currency as the sole legal tender. For the sake of sustainable economic recovery, it is imperative for the National Assembly to pass the NLRC bill now. (iii) The country’s remittances from abroad are currently estimated at $26 billion yearly as affirmed by the Nigerians in Diaspora Commission. But the Commission has indicated that most of the remittances are informal and uncategorised. “Informal fund remittance” is an anachronism in most countries hosting Nigerian “diasporans.” The remittances have not only overtaken oil proceeds as the largest source of forex but also debunked claims that oil earnings account for 90 per cent of Nigeria’s forex receipts.
Upon the recent devaluation of the naira, the CBN governor at the detriment of the economy arbitrarily consigned the flow of remittances to International Monetary Transfer Operations (IMTOs). But inconsistently, the Q4 (2019) ER shows invisibles accounted for over 64 per cent of total foreign exchange disbursed (read payments for imports generally), but the amount did not pass through IMTOs. Why then should IMTOs handle Nigeria’s invisible trade receipts? Relatedly, it is necessary to know what specific invisibles make up such a high proportion of the country’s imports.
Analytically, recipients of remittances are bona fide exporters of invisible services. All recipients own Nigerian bank accounts just as the remitters have bank accounts abroad. Therefore, remittances should be paid temporarily into the Nigerian bank accounts in the selfsame currency remitted and then transacted in the SFM within the NLRC recommended time limit by the recipients through DMBs. DMBs as brokers should earn a commission as noted above. Should the CBN hesitate to immediately issue appropriate circular in this regard, the federal legislature should urgently pass the necessary legislation to compel proper handling of remittances.
With regard to forex demand in the SFM, the eligible end-user base demand for dollars should be all embracing and inclusive of even the prospective holidaymakers abroad. Accordingly, forex demand should be influenced by the needs of the country. The national planning agency, after consulting with the relevant stakeholders, should draw up for enactment into law appropriately graduated and discriminatory tariffs, which should be supplemented by variable forex access tax (FAT) for all goods and services. A clearly defined tariff and FAT regime will both protect operators in the 46 activity sectors of the GDP from unhealthy importation and also complement domestic low interest levels to guarantee competitiveness of production. The moderated forex demand should have the additional objective of accumulating genuine external reserves as well.
For the sake of the integrity of the SFM, it should be noted that the CBN Act does not recognise the Bankers’ Committee as the presumptive and surrogate apex bank. As part of the COVID-19 token measures, the busybody-playing Bankers Committee “(i) directed oil firms (upstream, midstream and downstream) to sell their dollars only to the CBN and (ii) resolved to grant special forex funding and credit facilities to some pharmaceutical firms.” That may be quite harmful to the economy. As part of the process of returning the economy to good health, all outstanding dollar loans granted to Nigerian businesses in Nigeria by Nigerian-registered DMBs should be changed to naira loans. Sadly, under CBN heterodox system, DMBs, IMTOs, BDCs, etc make available remittances and export proceeds to facilitate imports of contraband and final products at the expense of domestic production.
For the avoidance of doubt, (a) the SFM should be the only market for selling and buying forex already in the banking system. (b) The naira is Nigeria’s legal tender. It is therefore improper and economically ruinous for DMBs to grant special forex funding and credit facilities to Nigerian businesses in Nigeria. Ponder the fact that some DMBs on the Bankers Committee have considerable foreign equity interest. The implication is that foreigners through DMBs teleguide the CBN, trample on Nigeria’s sovereignty and collusively aid and abet diversion of the country’s remittances and other forex proceeds for counter-economic purposes. Wholly Nigerian owned banks on the committee are thus disloyal to the country as willing partners in sabotaging economic advancement. Needless to state banking business entails collecting deposits and granting loans. Deposit money banking is not prioritising currency trading with intent to cripple domestic production nor is central banking limited to selling forex, both of which disappointingly characterise banking in Nigeria. It is necessary to stress that the CBN has the exclusive mandate, “to ensure price and monetary stability” so that DMBs may lend naira funds extensively and grow the naira economy for the good of all. And to that end, economic agents should be free to access forex for any genuine economic activity through the SFM subject to payment of the relevant tariffs and applicable FAT to raise government revenue.
And so following the devaluation of the AAR to N360/$1, the SFM-determined stable exchange rate would be contained within AAR+/-3 per cent but confined to a moving 3-per cent band of individual transaction rates pivoted on N360/$1. The transaction rates would range from N349.20/$1 to N370.80/$1. Because of the great supply of dollars by exporters to the market relative to the moderated demand of eligible dollar end-users or importers as explained earlier, transaction exchange rates will tend towards N349.20/$1, the cheapest dollar price under the market rules. As a result, (i) FA beneficiaries will obtain naira funds at the SFM prices; (ii) Unsold (surplus) dollars after meeting demand would be sold to CBN at SFM-determined price to accumulate external reserves, with CBN paying the set commission to relevant broker DMBs; (iii) The amount of naira CBN expends on the surplus dollars would be far less than FAAC-disbursed fiat printed naira volumes for any withheld FA dollar allocations and any consequential increase in liquidity would be amenable to MPC recommended bank rate, cash reserve and liquidity ratios for effectively maintaining low interest regime for a productive Nigerian economy; and (iv) The naira would be stable and successfully self-defending.
The prospect that possible official change, if need be, to sharpen the impact of the MPC tools would involve currency revaluation would enhance confidence in the naira and induce forex holders to convert their holdings to naira funds to hold or invest in naira assets.
The coming of COVID-19 has manifestly shown that the home-grown heterodox fiscal and monetary practices have reached a dead end. Being the seventh most populous country in the world, Nigeria would be acclaimed to have achieved economic success when it becomes at least the world’s seventh biggest economy. The country’s ample resources can be harnessed to attain that goal when the national currency is properly managed under the single forex market system. So the conclusion is this: Any government functionaries together and their preferred advisers, who continue to stonewall the beneficial change should give way to people who are knowledgeable about the way forward and are committed to employing conventional fiscal and monetary procedures for actualising the economic objective of making Nigeria the world’s seventh largest economy by the year 2030.