Naira redenomination risky for the economy- Dr. Ayagi

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Naira redenomination risky for the economy- Dr. Ayagi

 

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Sunday, 04 January 2009

The Central Bank of Nigeria is said to be reconsidering the reintroduction of Naira redenomination that was rejected a year ago. What is your reaction?

 

Well, I read about it in the newspapers recently, and honestly, I was shocked that the issue was rebounced.

I think it was suspended for excellent reasons; many people made arguments against it. I know when it was first introduced, Nigerians kicked against it because it was against their interest. It was introduced unilaterally by the CBN without consultation with the government. As individuals, we made presentations, and institutions also made presentations to government, and when government took into consideration all these things, it decided to stop the policy.

When Nigerians thought the issue has been forgotten, we were shocked again to hear of another plan to re-introduce the policy. You see, the  argument according to the chief proponent, Charles Soludo,  was that the value of the naira was going to be reduced drastically by cutting down two zero’s, meaning  that N1000 will be equivalent to N10 and N100 will be equivalent of N1. This means that the value of things will be depressed seriously, and we argued and many people argued that such was not proper for Nigeria at that stage.

The CBN governor, argued that the opponents of the redenomi-nation said that redenomination was  for countries suffering from hyper inflation. But  then he said no, it was not hyper inflation countries  that applies redenomi-nation and redenomination has never worked  in countries with  hyper inflation.  But that was contradictory, because he was not being consistent himself.

He mentioned Ghana and Germany as examples, but the truth is that he only contradicted himself, because all the countries he mentioned suffered hyper-inflation. Ghana, of course, suffered hyper deflation. We know the value of the Cedi was very high relative to the US dollars and they had to cut two zero’s down. Brazil also suffered hyper-inflation,  Germany  also suffered,  all these countries were hyper but he said, redenomination had never worked in countries with hyper inflation. What then was he talking about?

They equally argued that they want to realign the Naira to the dollar, that they want the Naira to be the equivalent of the dollar. That is tying the Naira to the dollar and we don’t have to do that. Fortunately, the Naira has not been operating too badly in  the exchange rate.

For the proponent to think that they will situate $1 to N1 shows serious artificiality, and unfortunately that is the argument the CBN is using, and I don’t know what its interest is that it has been insisting on the unproductive policy.

But I know certainly that their interest is not the interest of the Nigerian people. If they say the situation of the country has changed and that it is now more suitable than before, then I think they seem not to know what is going on in this country. We all know that the situation has not changed, in fact, it is the worst since 1987  and the crisis we are having now, was never seen before ; international economic crisis, domestic economic crisis that we are suffering  presently, I really don’t understand why someone will tinker with the Naira now.

Look at the what is happening now: crude oil that we rely on, 90% of our revenue has gone down drastically. Only a few months ago it was selling at $147 per barrel. Today, it is selling less than $50 per barrel, that is much less than the bench mark for last year. This year, government said the bench mark will be $45 per barrel so you are talking about a depressed economy because the budget is not going to be as good as last year and we are not going to have as much money as we have last year.

What all this means is that we are not going to have as many employment opportunities as we had last year, we are not going to have as much growth in the economy as we had last year, and there is therefore, general depression and we can not isolate ourselves from the international depression that is currently pervading the world.

Germany is already in depression, Japan is already in depression, America is already far in this bad situation and the European economies are far in the situation. You cannot expect Nigeria to be isolated. Now when we have all these uncertainties, risky situations, it is not the time when you think of introducing a risky policy that has no focus.

But you said the economy is depressed. Could the redenomi-nation spur the economy?

They cannot think like that, and if they do, then they are not economists.  There is no way any economist could think that when there is depression in the economy, he will introduce depressive measures again. I don’t think anybody who knows the economy could ever think like that, even if you don’t know the economy, you cannot introduce measures that are in themselves depressive, while the economy is in depression.

As we all know, there is depression internationally, and Nigeria is not totally safe from that depression, and we have already seen elements of that. Elements of depression in the budget, are unemployment, we are not going to have as much as we had last year.

So you cannot think that because you are having this problem, introducing this measure will bring any better situation, No. What we have to know is that introducing this measure will only depress the economy more, because you are going to decimate the value of what we have, you are cutting down two zeros from the currency, for instance N1,000 will become N10 and so on.

What they may have failed to understand was that people in the employment will get their payment cut, the minimum wage will be brought down, and people’s purchasing power will be reduced, and this pushes depression further.

And I challenge anybody to show me evidence that re-denomination will bring direct opposite to further depression in the economy. No, they cannot provide that evidence, because there is none.

Are you saying that re-denomination itself is a depressive measure in the economy?

Of course, now look at what the CBN itself said, that re-denomination does not work in countries with hyper-inflation, but the fact is redenomination is applied only to countries with hyper-inflation.

Normally, redenomination is applied to countries with hyper-inflation; we have seen its application in countries with hyper-inflation like Ghana and Germany where the measure was applied when they experienced serious hyper-inflation. This also happened in Brazil and all the other countries that the Central Bank itself mentioned. All these countries suffered hyper-inflation and we all know that depression is the opposite of hyper-inflation.

What is done normally is that if you are suffering hyper-inflation, you introduce redenomination to depress the economy and bring the inflation down. This way you bring the inflation to normal, not in the sense that it is depressed normal, but depressed relative to what it was before.

It seems economists hardly reach agreement on the best policy to ginger the economies of countries in problem?

I don’t know that economists differ on all things, but I do know that they will surely agree on fundamental issues but differ in some areas that need interpretation.

Look at the economy in general, look at the Naira and its present value, if there is a problem about that, and then think of the solution. At the moment, we have so many problems, such as poverty, unemployment and so on. What we should do is to put more efforts to bring it down so that we can have one digit inflation rate, and the lower it comes down the better. But just because we have two digits inflation of say 12 percent or more, that should not mean that we have to redenominated, no. If we have inflation of 100% or 200% that is when you begin to think about it and not even apply redenomination as panacea to reviving the economy.

I am sure what the country needs to do now  is to  put more efforts to control the inflation and ensure the economy is put on the right tract and not to talk of redenomination which is far from the reality of the situation in the country.

What I am saying is that we need to look inward to find better ways to putting our economy on good tract from within, and not bring outside measures into the economy at a time things have not reached a bad level. At the moment, we really do not need a situation where an outside intervention is necessary.

Look, this country has more serious problems to concentrate on than this redenomination issue: what about the rising poverty level, unemployment, electricity, agricultural development, housing for people, infrastructural development, name them. Why not concentrate on how to tackle these problems than waste our time and resources thinking of what is not necessary.

But with the dwindling resources occasioned by fall in oil prices due to current global financial crisis, what should be done?

The situation really becomes more difficult, but certainly redenomination is not the way to tackle the problem.  I am sure even the Central Bank is not saying that redenomination will tackle the dwindling resources of the country, it will not. There is of course, the current dwindling resource due to the prices of oil in the international market, and that surely affects our resources, there in no doubt about that.

In this case, what do you think the Central Bank should do now to fine-tune the economy?

I think they should continue with what they have been doing and not this redenomination. They know that redenomination is not going to help the country in anyway. They should just concentrate on their normal duties of maintaining the foreign exchange, and so on.

If you are to submit either a written or oral memorandum to the committee set up by the federal government to look at this issue, what will be your submission?

Well, all what I said earlier will be what I will advise them. I will tell them not to think of redenomination, they should advise government against it, and they should tell the government that the policy is bad especially now. And I will also tell them that they should expose the issue to Nigerians so that people will know what is going on.

Additionally, the National Assembly should be fully involved in this issue, the executive arm should also be involved and everybody should be involved; not just for a section of the government to determine an issue of such magnitude.

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