Question: “You did not support the floating of Naira. But the floating is designed to make Nigeria make things locally by closing the gap between the official and black rates of Naira with foreign currencies like US dollar. What is wrong with that?”
My Response: The irony is that you could have done all those without the float! We need to understand that even China does not fully float the Yuan for an opposite reason (if it floats, the currency will become stronger which it does not want since it is export-dependent. If you have things to export, a weaker currency helps you). What China does is to artificially track the US dollars, and with the funds it has in global reserves, it has been able to achieve that.
Unless you are fully advanced with “international currencies” like the USD, UK, Euro, Yen, etc, OR you generate so much foreign reserves like Russia’s rubles before the Ukraine war, floating is very risky. In Saudi Arabia, for decades, they did not bother: they simply pegged their currency to USD dollar, with no float, and they have had the foreign reserves to defend that status
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Floating has limited values for most countries. The biggest risk in such economies is not the variation between official and black market rates, but the instability in the exchange rate. In other words, that official rate is N415/$ and black rate is N550/$ is a smaller problem compared with weekly gyrations of the currency.
I used to write a lot on currency; I earned a doctoral degree in banking/finance with focus on international markets and global currency as a banker. I played a core role in advising the African Union to modulate on a single currency a decade ago via many lead papers and briefs https://base.afrique-gouvernance.net/docs/volume_21.pdf .
I had argued that welfare loss was evident in the model as the heterogeneous nature of Africa’s economy will make it nearly impossible for any supranational bank to deliver value across the continent in a fair way. Today, national central banks have tools to adjust as they want; under a single continental policy, most of those tools will disappear, making what happens in Nigeria to affect Togo, Benin Republic, etc whether they like it or not.
More so, the decades-long monetary union in the CEMAC union did not make that area economically better, and if that is the case, what magic would a single currency deliver? Currency union cannot do what industrialization policy could not deliver.
On Nigeria’s policy, I took just 30 minutes to do basic modeling and extrapolated for 12 months, and concluded that floating would cause “severe economic perturbations in the economy”. Right there, you could see welfare losses! I have always argued for our policymakers to publish briefs as they make policies. If they do, things will improve because all of us can help improve models for better outcomes.
For decades, no one understands how we make policies in Nigeria because no one publishes briefs or working papers which our university professors could challenge, refine, etc to advance the nation. We must change that playbook in the nation.
Question: “You did not support the floating of Naira. But the floating is designed to make Nigeria make things locally by closing the gap between the official and black rates of Naira with foreign currencies like US dollar. What is wrong with that?”
My Response: The irony is… pic.twitter.com/fMMh2qdw12
— Ndubuisi Ekekwe (@ndekekwe) February 1, 2024
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Which people will be publishing briefs, the ones that avoided debates during electioneering, and still had lots of people on this very platform defending nonsense? Not all of us suffer memory loss easily, whenever it comes to choosing how to get things right, we lose our minds.
What can be more refreshing and fulfilling than listening to those know what they are talking about, and working with those who know their job? What we normally engage in here is to prep misfits up; ferociously defend and support them; accuse those who can see through the garbage of ethnic bias and sentiments, and after everything ends up as had been envisaged by the truly knowledgeable ones, we come back here to yammer. It is not many people that are to be taken seriously anyway.
This page right here is perhaps the most important forum on economic and monetary policies, so any government official who is determined to make a difference should be frequenting here; there will always be important insights to take home.
When you apply physical muscles on things that demand intellectual rigour, you end up in the sort of mess Nigeria is currently in.
Nobody should be asking for more solutions, because the answers are not on the papers, but with the people.