Naira became a “commodity” when Nigeria scaled POS agency banking. When that happened, the Naira, among other features, became a “product” or “service” which could be purchased and resold for “gain”. That is not new since we exchange US dollars for Naira and vice versa, but in this case, you are exchanging digital Naira for cash, and vice versa, within the context of the same currency. Endogenously, it means there are many frictions in the availability, velocity and transmissibility of Naira for POS agents to have imposed a fee to fix them.

Simply, the construct of Naira as a national currency is not well optimized at the distribution and availability phases. Otherwise, people cannot be selling Naira as yam, garri or course. Whenever that POS agent imposes that fee, Nigeria has failed you, and diminished the elemental value of Naira since you are using Naira to buy Naira!

People, if you compound that POS agent fee over months, that 1% or whatever becomes a HUGE amount the society is wasting. That is an additional cost on production of goods and services in that local community where everyone is losing 1% of value to “deposit” or “withdraw” Naira.

[I know it does not affect the big men and women of Nigeria, unlike the 0.5% cybersecurity levy (a bad policy I must add)! But people do pay N10 to collect N1,000 in cash from POS agents. Have you forgotten?]

Remember: the people who invented POS did it to enable payment of goods and services, not for intra-currency exchange, via forms. But in Nigeria, we made the Naira the goods and services, and we’re exchanging them with 2 million POS agent “businesses”.

Good People, the history of money is deep; from the cowry era to the barter era – and to the electronic era. Yes, humans have always figured out how to exchange goods and services for value. And across centuries and kingdoms, the quest for improving the efficiency of that exchange has remained. A moment came in 7th century China when the  Tang dynasty invented paper currency. Later on, the Song dynasty in the 11th century made it popular. The Mongol Empire and Yuan dynasty scaled it. The trajectory to frictionless exchange has never stopped. 

POS agency banking is vital to Nigeria’s economy since the traditional banking services remain limited. But do not think we are not paying a huge fee for depending on selling and buying Naira to function across local communities!

Naira became a “commodity” when Nigeria scaled POS agency banking. When that happened, the Naira, among other features, became a “product” or “service” which could be purchased and resold for “gain”. That is not new since we exchange US dollars for Naira and vice versa, but in… pic.twitter.com/mvx11zdbBD

— Ndubuisi Ekekwe (@ndekekwe) May 12, 2024

Yes, I am always happy when our community members ask me to comment on some important policies which I might have missed. The one today is how I view Nigeria’s plan to issue domestic USD dollar bonds later this year, considering all the efforts to wean Nigerians of US dollar.

First, Nigeria needs this money for many reasons which include defending Naira, funding the national budget, servicing our debts (about 75% of revenue), and other national matters. They call it a “bond” but it is nothing but a loan which investors give to the government, and the government will repay the loan, with interest and the principal as agreed. If Nigeria issues a US dollar bond, Nigeria will magically have USD in its coffers. The goal here is to stabilize the Naira, which continues to struggle.

A bond is a loan that an investor gives to a corporation, government, or municipality in exchange for capital. The borrower agrees to pay the investor interest periodically and repay the principal, or face value, of the loan on a specific date, known as the maturity date. The interest rate paid on a bond is called the interest coupon, and is usually paid twice a year as a percentage of the face value.

The government wants to entice us to bring those hidden US dollars which are in special bunkers into the banking system in Nigeria. Possibly, if you have US dollars under your pillow when you see the promise of getting that money back with interest, you will participate in the bond offering. This one is home, and domestic, which means villagers in Ovim, Abia State, can participate.

Are you excited already? Yes, the promise is to lend USD dollars, and be paid back in USD dollars with interest, by the Nigerian government. You have been waiting for that, and the government is going to make it possible soon.

As a village boy, the idea is good on paper, but this policy will destroy Naira further. Yes, he is coming again. Hold on – and chill. My point is simple: if you allow Nigerians to invest in USD to be paid interest in USD, people will sell Naira to look for USD to invest in this bond. In other words, Naira will weaken because this bond will put pressure on the local currency.

The implication is this: as the nation hopes to attract some local USD into the system, there is a risk of messing up Naira further in the process. In other words, the government is bringing this fight home, no more in New York or London, and Naira may not be prepared.

Yes, I am always happy when our community members ask me to comment on some important policies. The one today is how I view Nigeria’s plan to issue domestic USD dollar bonds later this year, considering all the efforts to wean Nigerians of US dollar. First, Nigeria needs this… pic.twitter.com/oM3Q60FpCm

— Ndubuisi Ekekwe (@ndekekwe) May 11, 2024

I call the government to focus on its policy to support local manufacturers with the billions of Naira it is discussing. But instead of giving any company money, offer a credit-back guarantee which means only companies which have executed can receive the benefits. Through that mechanism, you eliminate briefcase companies. 

This is how it works: we will not give you any cash, but we will issue you a credit of 50% on equipment investment if you are able to install and operate the system after 3 months, validated by Standard Organization of Nigeria, and Manufacturers Association of Nigeria. That way, the government is supporting real ventures, not vapours!

Comment on Feed

Comment 1: You’ve raised some excellent points about Nigeria’s plan to issue domestic USD bonds. There’s definitely a lot to consider here.

On the one hand, it’s true that this policy could attract much-needed foreign currency and boost government revenue. They do need those dollars for various reasons you mentioned. Plus, offering a familiar option within Nigeria might motivate people to bring their hidden dollars back into the system.

However, your concern about the Naira weakening is very valid. If people are encourage to invest in USD bonds, it could create more demand for dollars and put downward pressure on the Naira. This could potentially contradict the government’s long-term goal of weaning Nigerians off the dollar.

Perhaps there’s a middle ground. Maybe the bond offering could have some features to mitigate the impact on the Naira. For example, there could be a limit on how much USD one person can invest. Additionally, the government could use some of the raised funds to strengthen the Naira through Central Bank interventions.

It will be interesting to see the final details of this policy and how the Central Bank plans to manage the potential risks. It’s definitely a complex issue with both potential benefits and drawbacks.