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Therefore, the apex bank should not appropriate that role to itself by usurping the functions of deposit money banks.
In any case, CBN intervention funds are offered at interest rates of between five per cent and nine per cent which are less attractive than the likely interest charges under the safety inflation regime. Another disadvantage is that agent deposit money banks often impose under-the-table extra costs. Also, the intervention funds represent an addition to money supply and spike inflation.
Indeed, the country’s already high inflation jumped to 18 per cent (year-on-year) in March 2021 in response to the spate of COVID-19 related intervention funds. In short, intervention funds intensify inflation and exacerbate extreme poverty. They should cease.
Furthermore, given the heterodox approach, decisions of the monetary policy committee have become irrelevant. The committee’s liquidity ratio (which has since 2003 ranged from 1 per cent to 30 per cent), the cash reverse ratio (CRR), and monetary policy rate (MPR) have failed to rein in the persistent excess liquidity with dire economic price.
For example, (i) at the instance of the World Bank (the double-dealing Bretton Woods institution just like the IMF) mopped and purportedly sterilised excess liquidity using treasury bills has transformed into the bulk of the national domestic debt.
The service cost of the debt alone today exceeds 70 per cent of Federal Government revenue thereby robbing the Federal Government of funds to execute necessary infrastructure projects. (ii) The bottom border interest rate of the MPR-in-corridor marks the standing deposit facility (SDF) rate. While the CBN had an acting governor, the apex bank paid deposit money to banks up to 10 per cent SDF interest rate for idle bank depositors’ funds which CBN purposely did not demobilise with the CRR and liquidity ratio. The SDF rate has been gradually reduced to 4.5 per cent interest. The SDF serves as a subsidy for idle DMB funds.
In all, under the heterodox monetary practices, one, banking sector lending capacity is over 70 per cent under-utilised while struggling businesses are constrained to access bank credit at the double-digit prime/maximum interest rates noted earlier or angle for CBN intervention funds. Two, under Buhari, the naira has depreciated, nay, has been devalued on average by at least 46 per cent against the dollar between 2015 (N192.4/$1) and 2020 (N358.8/$1).
Three, CBN imposed so-called official forex restriction on 42 (later 44) import items including textiles purportedly to boost domestic production and fight unemployment. Latest NBS data indicate that imports of textiles more than doubled in one year ending March 31, 2021 (that is akin to creating jobs abroad). The imports were paid for using Nigerian forex. Also, the unemployment level has climbed to 33 per cent.
Four, the apex bank has consistently promoted leakage of Federal Government revenue to undeserving creditors via fake national domestic debt. So, far from playing economic development role, the CBN under Buhari has continued to concretely play the adversarial role to the naira and all forms of domestic production thereby deepening extreme poverty.
Yet the solution to the economic problem is simple. First, Federal Government should drop the heterodox fiscal and monetary practices, which are responsible for the monotonic economic decline with the attendant rising level of extreme poverty. Second, imbued with the principle of economic rational expectation, Federal Government should adopt conventional and international best practice methods which have enabled quondam peer countries of Nigeria such as Malaysia, Singapore, and South Korea along with industrialised economies to outdistance the country.
To this end, the essential step is to ensure that the naira exchange rate emerges in a single forex market (SFM) which utilises the Appropriation Act exchange rate as the anchor of the managed floating system. In the SFM, total forex supply (inclusive of forex sequestered in domiciliary forex accounts contrary to Section 2(b) of the CBN Act) should be pitted against eligible demand for forex. Eligible demand should be based on the relative needs of various activity sectors constituting the GDP and the recognition of the Federal Government sovereign duty to accumulate external reserves and fully raise its revenue and protect domestic production and employment. Forex inflows should be transacted within a specific time frame not exceeding 30 days for the purpose of conversion to legal tender naira funds or settlement of foreign commitments. Instead of CBN’s heterodox practice of arbitrarily allocating foreign exchange to selected economic segments, the SFM would transparently allocate forex. As noted earlier, every economic activity operator contributes to national economic development. Accordingly, there should be free access to forex via the SFM subject to payment of appropriate tariffs and forex access tax as contained on the eligible forex demand schedule. The schedule, which should be produced by the FMFBNP alongside the budget for NASS to enact into law, should be updated as need be.
Therein lays the road to put Nigerians to work productively and rapidly grow the economy and eliminate extreme poverty.
Concluded
