Normalizes the naira for accelerated inclusive growth

Five, the corrupt vested interests feasting on the HFMP should be eliminated.

For the sake of sound economic results, it is imperative to abide by relevant provisions of the Central Bank Act 2007, the Fiscal Responsibility Act 2007 and the yearly Appropriation Act in order to normalize the naira exchange rate.

Towards that end, forex supply in the economy commonsensically includes the total forex earned by the 46 GDP activity sectors.

In Nigeria’s naira economy, total forex supply including Federation Account dollar allocations and NNPC and international oil companies’ dollar funds should be converted to legal tender naira funds in compliance with the principal object 2(b) of the CBN Act within a short specified time limit of preferably one week.

In this regard, it should be noted that there is no prosperous hybrid currency (multiple currency practice) economies anywhere in the world. Neither the military head of state who initiated the HFMP and who also became the first president under the present democratic dispensation nor the successor military head of state who happens to be the incumbent President nor the self-acclaimed military president nor the military head of state who introduced multiple currency practice via domiciliary forex account, nor the last military head of state nor the civilian president before the incumbent President nor the double-dealing IMF/World Bank nor the consultant trio who were retained to anchor the launch of the failed Economic Recovery and Growth Plan nor successive CBN governors together with the fawning Finance Correspondents Association of Nigeria nor the Bankers Committee’s deposit money bank heads since the 1970s nor the Economics Department of any Nigerian university nor the Nigerian Economic Society can name one successful/prosperous country in the world which has adopted multiple currency practice or domiciliary forex account ts combined with substitution of the country’s forex earnings with fiat printed domestic currency funds for government budget expenditure.

The mandatory forex conversion to legal tender naira funds should be consistent with section 16 of the CBN Act and should therefore be by means of a single forex market (SFM) and thereby bolster the realization of the five principal objects of the apex bank simultaneously. Obeying only market forces of supply and demand the SFM not only eliminates the apex bank’s arbitrary and restricted forex allocations at artificial naira exchange rates but also guarantees unfettered access by all legitimate economic activities to available forex at the market-determined exchange rate.

By sovereign right, governments should moderate forex demand by imposed graduated (discriminatory) tariffs plus discriminatory (graduated) forex access tax as set by the planning agency based on the country’s economic objectives and national needs including earmarking funds for movement in the balance of payment, accumulating foreign reserves, ensuring budget expenditure matches revenue, etc.

The WTO welcomes such market-based controls but opposes an administrative ban on access to forex as the WTO Director-General even canvassed early in 2021. By contrast, it should be pointed out here that besides prolonging the present ruinous multiple exchange rates by way of forex rebate and injurious multiple currency practice, the RT 200 FX program is chock-full of administrative say-so thereby making it infinitely inferior to the single forex market system.

Under the SFM system, neither the CBN administratively withholds Federation Account dollar accruals nor the deposit money banks illegally confiscate bank customers’ dollar remittance and withouthold private sector export proceeds in forex domiciliary bank accounts. Explicitly as explained in previous editorials dealing with the single forex market system, to buy or sell forex via the SFM may be likened to purchasing or selling company equity shares through the stock exchange. The SFM is based on the managed float exchange rate fixing system with the Appropriation Act exchange rate serving as the anchor exchange rate. The forex buyer and seller accept the market-determined exchange rate. But forex transactions attract (a) fixed commission for the forex-broker DMBs preferably not exceeding 0.25 per cent because DMBs should not escalate domestic production cost uncompetitively by profiteering on the transfer of forex from the owner to the end-user; (b) discriminatory or graduated customs tariff for the goods and/or services being imported, which does not form part of the exchange rate; and (c) applicable forex access tax ranging from zero percent to the upper limit set by the planning agency, which again does not form part of the exchange rate.

To checkmate dumping, all imports including items not procured with forex through the SFM should attract the charges (b) and (c) on the verified commercial value of the imports concerned. The regulatory apex bank, CBN, is the buyer and seller of forex of last resort at the SFM – determined exchange rate. In strict compliance with the legal tender naira rule, purchased forex which does not qualify for immediate release or settlement should be kept by the forex end-users bank in forex awaiting transfer abroad pool which should be domiciled in the CBN with funds flowing like cash reserve ratio funds (which are also domiciled in the CBN) pending their maturity for seamless transfer out of the pool.

The superiority of the SFM system to the HFMP arrangement may be illustrated with CBN data. Suppose there existed the SFM system in 2021 with a single pool of national external reserves. MPC communiqués Nos 134 and 140 indicate that the external reserves rose from $36.23 billion in January 2021 to $40.20 billion in December 2021. The accretion of $3.97 billion implies that the apex bank in 2021 made a last –resort net purchase of that amount at the request of forex – broker DMBs acting on behalf of bank customers selling forex.

To be continued tomorrow.

Leave a Reply