The Indefensible Naira

Our so-called economic experts are among the least informed about the reason the country’s local currency is indefensible. I have said it time without number that the CBN is always pursuing disjointed monetary policy, making one wonder if the CBN leadership has an elementary understanding of the economy itself, let alone have what it takes to come up with a sound monetary policy.

That is why I am not surprised that the CBN has finally admitted that the economy is suffering from economic financialization, meaning excess liquidity in the banking sector with unheard-of N562bn cash idling in banks’ vaults, while the rest of the economy suffers from incessant liquidity shortage.

What the managers of our monetary policy are yet to figure out is the kind of monetary policy measures they could put in place to ensure that the current excess liquidity in the banking sector is made available to the rest of the economy, particularly the real-sector economy that triggers economic growth and job creation. Mopping it up, which has been a common approach, has never been the best approach since all it does is to quarantine money that should have been invested in wealth creation.

The banks, as profit maximizers, have always done well in exploiting the easy ways of making money for depositors and shareholders,  even if that could make them seem like economic saboteurs.

But blaming the banks is a misplaced judgement; after all, it is the government that persistently borrows from the banking sector at such unheard-of cutthroat interest rate (which crowds out the real-sector firms particularly manufacturers and SMEs), rather than borrow internationally from cheaper and more competitive money markets.

Also, the fact that the cost of doing business in Nigeria is so high due to huge infrastructure deficit, coupled with open border economy we are running that make foreign imports continuously price out similar locally made goods, is enough to pay the banks in import financing and investing in foreign exchange hoarding rather than channel depositors’ money into the real sector.

It is the reason that, at every Banking Committee meeting, the banks have always insisted on two things from the CBN: high interest rates and stability of the over-valued naira.

A high import-dependent economy – exporting mostly crude oil and importing petroleum products, importing food – that spends hundreds of billions on health care tourism and foreign education and training shouldn’t expect less pressure on its local currency.


-By Odilim Enwegbara, a development economist


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