Unlocking the Naira's Potential
Why a Paradigm Shift in Currency Management is the Key to Nigeria's Prosperity
“Thus, it is ironical that the CBN which instigates a market disequilibrium in favour of the dollar when it substitutes fresh Naira values for dollar denominated revenue, should later turn round, in seeming defence of the Naira exchange rate, to auction small rations of dollars in the same market, which the same CBN, had earlier inundated with excess Naira supply; unfortunately such a market imbalance will invariably always precipitate weaker Naira exchange rates, which will invariably increase fuel price, regardless of crude price and output.” - Sir Henry Boyo
(Source: https://www.tradingview.com/symbols/NGNUSD/)
The Nigerian Naira, once a symbol of national pride, has in recent years become synonymous with instability, inflation, and economic hardship. Every trip to the market feels like a gamble, every business venture a dance with uncertainty. But what if there was a simple yet powerful solution to this complex problem? Renowned economist and industrialist, the Late Sir Henry Boyo proposed a radical yet elegant shift in how Nigeria manages its foreign currency, with the potential to unlock the Naira's true potential and fuel a new era of economic prosperity.
The Vicious Cycle: Monetizing Misery
Section 162 of the Nigerian Constitution states that “…..there shall be a Federation Account…”.
The key challenge behind the continual devaluation of the Naira against the dollar (and the structural imbalances it creates in Nigeria’s import dependent economy) is how this wording has been interpreted by the CBN and other government institutions in the country.
The current system traps the Naira in a vicious cycle. When Nigeria exports resources like oil, the Central Bank (CBN) converts the earned foreign currency into Naira, flooding the market with excess money. This, like pouring water into a bucket with holes, weakens the Naira, driving up prices and making everyday life a struggle.
Limited Supply, High Demand: A Recipe for Stagnation
The Naira's woes don't end there. The CBN, now owner of the dollars it converted to Naira, issues trickles of these dollars to a very limited number of recipients through periodic auctions with limited participants; primarily banks and bureau de change (BDC) operators. Banks, lured by the easy profits of forex trading, prioritize buying and selling dollars over lending to productive businesses. This creates a credit squeeze, starving the real economy of the fuel it needs to grow and create jobs.
That is why, ironically, even if export revenues increase (which should be good for the nation), it doesn’t strengthen the Naira nor spur economic growth. Additionally, unemployment and inflation would continue to persist. If one looks at the peak years of Nigerian oil revenues, rather than a stabilization/strengthening of the local currency, we see a continued decline in its value - along with continued non development of critical sectors of the nation’s economy.
The Mop-Up Game: A Pyrrhic Victory
In a desperate attempt to control the excess Naira (commonly referred to as (“excess liquidity”), the CBN resorts to the "mop-up" game. By borrowing back Naira at high interest rates, they try to drain the market. But this comes at a cost, pushing up lending rates for businesses and consumers, further stifling economic activity.
(Source: https://www.ceicdata.com/en/nigeria/bank-loans/ng-domestic-credit-to-private-sector-by-banks--of-gdp)
Boyo's Bold Vision: Breaking the Cycle with Dollar Certificates
Sir Henry Boyo, for many years prior to his death in 2019, proposed a bold solution that cuts through the Gordian knot of this complex problem. Instead of converting foreign currency, he envisioned a "Federation Account" with separate dollar and Naira sections. Each government tier (federal, state, and local) would receive "dollar certificates" representing their share of the foreign currency reserves.
Market-Driven Pricing: Unleashing the Power of Transparency
These dollar certificates wouldn't be mere pieces of paper. They would be instruments of economic freedom. Governments could use them to pay for dollar-denominated expenses like foreign debt, or, importantly, sell them at market rates to banks and BDCs. This injects dollars into the system without creating new Naira, meeting demand without fuelling inflation.
A Virtuous Cycle: From Scarcity to Stability
The benefits of Boyo's proposal are manifold. By reducing Naira supply, the currency stabilizes, attracting foreign investment and boosting confidence. Lower inflation eases the burden on households and businesses, while increased credit availability fuels economic growth and job creation. Banks, no longer able to rely on the easy profits of forex trading, are forced to compete for business through productive lending, stimulating the real economy.
Henry Boyo (source: https://images.app.goo.gl/ZSg3cGCxLajEwQCp8)
Challenges and Hope: A Journey Worth Taking
Implementing Boyo's vision may require legal changes and face resistance from those benefiting from the current system. But the potential rewards are too great to ignore.
Femi Falana's legal action in 2014, and the growing public awareness at the time, highlighted the urgency of addressing this issue. It’s time to re-ignite the discussion. By sharing this message and advocating for change, we can pave the way for a future where the Naira is a symbol of strength, not struggle, and where Nigeria's economic potential is finally unleashed.
Ultimately, this will likely need to be litigated which may take years (appeals inclusive). However, the only alternative is for Constitutional Amendment to clarify the relevant provisions. But this would be an extremely arduous task given that 2/3 of the State Houses of Assembly must also agree before any such amendment can be passed. Hence it is important to continue with the advocacy and bringing attention to this issue until the key stakeholders buy-in.
Join the Conversation: Let's Talk Naira
This is just the beginning of the conversation. Spread the word, share your thoughts, and let's work together to unlock the Naira's potential and build a brighter future for Nigeria.