Home Latest Insights | News “Ndubuisi, why are you against the floating of the Naira?” – A Question

“Ndubuisi, why are you against the floating of the Naira?” – A Question

“Ndubuisi, why are you against the floating of the Naira?” – A Question

Question: “Ndubuisi, why are you against the floating of the Naira?”

My Response: Let me simply quote from my piece in June 2023 when the float was announced: “In his O’ Level textbook on economics, AO Lawal explained demand and supply and the movement of price on the demand-supply curve. If I apply what he explained in that book, floating naira with no capacity to earn USD dollars will kill Naira, because there is an asymmetric imbalance on demand and supply of USD in the Willing Buyer, Willing Seller nexus. In other words, two people may each have $100 to sell while twenty people want to buy each $100. If you do not close that number to near parity, the equilibrium point will keep shifting and I do not see how Naira will stabilize because demand outweighs supply here.”

So, you can see, it is structural, and you cannot financialize yourself out of the core tenets of the market. The “laws” of demand and supply cannot be disintermediated. So, provided Nigeria does not earn enough USD even as demand of USD stays strong, in multiples, Naira will struggle to attain a decent pricing rate equilibrium against the USD. This is foundational economics.

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So, if Naira is unable to attain that equilibrium, the smart thing to do is NOT to expose the Naira to the full weight of market forces, since it cannot compete effectively. Nigeria should FLOAT companies (yes, start companies for productive things) and should change the policy of floating its currency!

What is happening here is giving someone a sword in a battle of military tanks. Yes, it is all about Demand and Supply, and how those shift pricing equilibrium. It works in Oriendu Market Ovim and certainly in CBN headquarters in Abuja.

Comment Summary via Facebook:

Your response against floating the Naira focuses on the demand-supply imbalance for USD in Nigeria. High demand for USD, driven by import dependency and other factors, contrasts with limited supply due to reliance on oil exports. This imbalance can lead to a sharp decline in the Naira’s value if floated, causing market instability and increased inflation.
Given these risks, you suggest alternatives like managed exchange rates and policies to boost USD earnings through economic diversification and foreign investment. The goal is to stabilize the currency without exposing it to the full impact of market forces. Floating the Naira without addressing these structural issues can harm the economy, so a cautious approach that focuses on underlying economic changes is preferable.

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1 THOUGHT ON “Ndubuisi, why are you against the floating of the Naira?” – A Question

  1. All strong economies were/are built on HOPE. So, if those leading your fiscal and monetary spaces cannot supply that all important element, nothing will advance.

    It is not whether Nigeria will rise in ten or twenty years time that is the problem, the problem is that no one can envision when Nigeria will rise. Herein lies the issue.

    Tell us that Nigeria will attain this or that height by 2040, no problem, all we want to see is the PATHWAY to that 2040. In the pathway, we will see what to expect in 2025, 2027, 2029, 2031, 2033, etc. Each with all plausible scenarios considered, so that you don’t come later to yammer that exchange rate destroyed value, that would mean you were inept from day one. Once we see the pathway and your conduct shows that you are faithful to it, you will see how things will begin to change for better.

    We are talking about strengthening the naira on the one hand, and on the other hand some people think that a coastal road from Lagos to Calabar is a priority. Will it make cost of diesel or petrol to come down, or how will this political road move naira from sorry state to enviable state? None of your rulers bothered to explain, but they are soldering on, and yet expect miracles.

    Never attack truth, else…

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