In recent headlines, the Coordinating Minister of the Economy, Mr. Wale Edun, highlighted a significant point: vast amounts of Nigerian money, held in domiciliary accounts across various banks, remain untapped. The minister and his team are strategizing on how best to utilise these funds to rejuvenate Nigeria’s economy. The resonances between his remarks and the principles outlined in my ‘Afonomics’ proposal are unmistakable.
I may not be a trained economist, but a fundamental truth stands out: allowing the USD to overshadow the Naira in Nigeria’s economic landscape poses a significant threat. No nation aiming for global competitiveness and economic sovereignty would permit a foreign currency to dominate its internal financial system. By not addressing this critical issue with the urgency and aggressiveness posited in the Afonomics article, we risk undermining our economic stability. Alarmingly, there are reports of banks enticing customers with alluring returns on USD fixed deposits. At the time of penning this, the exchange rate stands at 927 Naira to the USD, and without intervention, this could touch a staggering 1,000.
Considering Mr. Edun’s participation in the G20 summit, it’s paramount for him and his team to derive insights from nations like India and China, which have successfully managed their forex scenarios.
India’s Robust Approach to Forex Stability:
● Reserve Management: The Reserve Bank of India (RBI) holds an impressive cache of foreign exchange reserves. This not only provides stability during economic downturns but also helps maintain confidence in the Indian economy on global platforms.
● Forex Market Intervention: The RBI has been known to proactively step into the forex market. Their occasional buying and selling of the Indian Rupee (INR) ensures that it doesn’t experience abrupt volatility, thus providing a semblance of predictability and stability to traders and investors alike.
● Trade Policies & FDI: India has strategically formulated its trade policies to boost exports. By liberalizing its Foreign Direct Investment (FDI) norms across various sectors, the nation ensures a consistent inflow of foreign exchange, bolstering the economy.
● Borrowings & Bonds: The innovative External Commercial Borrowings (ECBs) and Masala Bonds are significant tools in the RBI’s arsenal. These financial instruments, by design, encourage foreign currency inflow, strengthening the country’s foreign reserve pool.
● Regulations & Remittances: The combined regulatory oversight of the RBI and the Securities and Exchange Board of India (SEBI) ensures that derivative markets are not marred by excessive speculation. Additionally, by streamlining the remittance process for its vast diaspora, India guarantees a consistent source of forex inflow.
China’s Strategic Forex Management:
Managed Float Regime: Instead of a free-floating currency, China has employed a ‘managed float regime’ for the Renminbi (RMB). This system involves the People’s Bank of China (PBOC) setting a daily reference rate and allowing the currency to float within a specified range.
Amassing Reserves: China, being one of the largest economies globally, has accumulated vast foreign exchange reserves, primarily dominated by the USD. This helps buffer its economy against potential forex volatility.
Capital Controls: Beijing implements rigorous capital controls, regulating money flowing in and out of the country. These measures prevent sudden massive outflows, which could destabilize their currency.
Belt and Road Initiative: China’s ambitious global infrastructure plan, the Belt and Road Initiative, has facilitated trade deals in RMB, promoting its use internationally and ensuring forex stability.
Internationalization of RMB: Over the past decade, China has made efforts to internationalize the RMB, striking deals with various countries to trade directly in RMB, bypassing the USD.
The Afonomics Proposition for Nigeria:
Building on the aforementioned, my suggestions include:
Swift Conversion: Any USD payments received should be converted to Naira within a tight 1–2-week window. If this isn’t done, an automatic conversion at the I & E Window rate should be enforced. This reduces room for manipulation and fosters prompt economic activity.
Parallel Market Oversight: Transactions involving the USD for vendors through parallel markets or “aboki” should face stringent conversion mandates – a week at most. If this window is missed, the prevailing I&E Window rate should kick in, ensuring fairness.
Addressing Underground Concerns: Some fear that strict regulations might push USD transactions underground. However, this is unlikely to be a pervasive issue. Business imperatives necessitate formal transactions, bringing them back into the system.
With the implementation of such a policy, Nigeria can quickly discern the intrinsic value of the Naira, promoting clarity and confidence in the forex market.
In summation, I urge our international representatives, especially those at premier platforms like the G20, to actively engage and collaborate with nations that have successfully navigated their forex challenges. Nigeria’s forex conundrum can find its solution in a blend of creative policymaking, domestic production incentives, and knowledge-sharing from global best practices. The Afonomics proposition, albeit debated, offers a refreshing approach to address our forex instability. As we look towards the future, let’s prioritise adaptive, comprehensive strategies that reaffirm the Naira’s prominence, recognising its genuine worth and firmly reinstating its place as Nigeria’s singular legal tender.