Mr. Governor, For Nigerian Naira To Fight Globally!

To the interim Central Bank of Nigeria governor, I have this village suggestion to make: the strength, power and redemption of the Naira will not come from the absolute policies in the headquarters of the Central Bank of Nigeria, but through what happens in warehouses, factories, etc (the old and new types) across Nigeria. 

So, any playbook which is designed to help the Naira must consider how those old and modern factories will contribute to Nigeria’s balance of trade and payment through production.

More than 100 years ago, the most powerful currency in the world was the British pound sterling. Then Britain was the world’s center of production innovation. Even when the US economy overtook the UK in the late 1880s, the GBP was still the global reserve currency.

But as the US gained through better balance of trade and payment, the US dollar became more powerful. Over time, the world shifted to the dollar. Going back centuries, the Chinese Yuan was even absolutely dominant. In short, during the Tang dynasty, paper money was invented as China ruled economically. In the last ten centuries in our modern global history, China has ruled at least six economically (the Tang, Song, Mongol Empire, Yuan, etc). 

It is expected that in decades, the Yuan will challenge the US dollar heavily because – again – what makes currencies STRONG are happening in China: production with strong balance of payment and trade. 

Nigeria needs to make things – physical, service, digital, etc – as those are the only ways the Naira can fight globally in the league of currencies! You cannot fix via bank branches, only the warehouses and factories (old and new) will redeem the Naira. Good luck.

The history of money is deep; to the cowries and to the barter. 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.

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Comment 1: Exactly my thought. Floating the naira will not lead to increased production & export, which would in turn have led to increased availability of FX. Before the naira became this weak, this policy could have helped the economy significantly; However, right now, its only going to increase the pressure on naira and sink it lower. I doubt that the timing is right for this policy.

Comment 2: Well said Prof. Improved balance of trade or else we will go back to shoring up the Naira and Fuel subsidy in no time. The population is there to be used to achieve the balance of trade.

Comment 3: I couldn’t agree more, Professor Ndubuisi Ekekwe. The strength of a nation’s currency is not solely dependent on the policies made in the central bank’s headquarters, but on the productivity and innovation happening in warehouses, factories, and other sectors. Nigeria needs to focus on making things – tangible, intangible, and digital – to redeem the Naira and compete with other global currencies. It’s time to shift our attention towards production and trade balance, just like how the US dollar gained dominance through better trade and payment balances. It’s time for Nigeria to step up and create a production revolution that will lead to the redemption of the Naira. Good luck to us all!

Comment 4: Thank you Prof – for the free advice.

Think of currency as a product – then apply the simple law of demand – you’ll see that a currency will rise in value only when there’s a demand for it. So long as there’s plenty Naira demanding for Dollar, without a balancing demand – the Naira will continue on its journey of paralysis. Balance of Trade through export and import is the only sustainable way to manage the value and stability of a currency!

Comment 5: The strength of our Naira is rooted in production which both fiscal and monetary agents must unearth beginning with import substitution strategy as a quick win to salvage the unintended consequences of a free fall in the value of our currency.

Comment 6: Well said Ndubuisi Ekekwe, I thought I was the only one not moved with the usual ‘kinetic’ activities at CBN headquarters each time a new lead is announced. Whether you float or swim the naira, value can only be sustained with visible and measurable increase in production. We still dey play.

Comment 7: Great insights! Ndubuisi Ekekwe I completely agree that the strength and redemption of the Naira lie in the productive capacity of Nigeria, rather than solely relying on policies formulated at the Central Bank headquarters. Your reference to the historical dominance of currencies like the British pound sterling and the Chinese Yuan highlights the correlation between economic production and currency strength.
To ensure the long-term stability of the Naira, Nigeria should focus on fostering a thriving ecosystem of warehouses, factories, and other industries. By promoting local production, both physical and digital, and encouraging a favorable balance of trade and payment, Nigeria can enhance its economic power and potentially challenge dominant global currencies.

It’s crucial for the interim Central Bank governor and policymakers to recognize the significance of these factors and prioritize initiatives that support the growth and development of Nigeria’s productive sectors. I wish them the best of luck in their endeavors to strengthen the Naira and drive sustainable economic progress.

Comment 8: Real issues Ndubuisi Ekekwe. Nigeria has turned to a big financial intermediary where all we do is use fees, taxes and arbitrage to generate income for a limited few. Well, we are gradually reaching saturation for this business model…you can’t flog a dead horse. Now, we need to actually produce something. Goods, services and real value that can be exported. Rejuvenation of physical assets and reallocation of resources. Back to the drawing board!

My Response: “Now, we need to actually produce something.” – nothing but the truth. And our policy makers must work to provide platforms to make that possible.

Comment 9: Prof Ndubuisi Ekekwe what’s your take on the new FX policy? The one that ensures Naira is sold at the I&E, effectively unifying the disparity between black market and CBN rate?

My Response: I just stated my opinion. Policies from CBN HQ cannot maintain the equilibrium. It comes down to if Willing Buyer, Willing Seller can come into a transaction at scale. If demand and supply can attain equilibrium, things will work. Otherwise, Naira will keep losing grounds.

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