HOW CAN CBN MAKE NAIRA STRONG

At present, $1 is around N400. Everyone that buys dollar does not like this exchange rate. What can CBN do? A thread.

There are about four methods to make your currency strong. Do any of the four and you're good to go.

Method 1: use fixed exchange rate system. Announce a specific figure for the exchange rate of naira and dollar. If you like, call it $1 = N1. When they say government is powerful, this is one of the areas. Can Nigeria do this under Buhari? Yes if "can" only means "muscle".

Method 2: float the naira (as it is being floated) and defend it aggressively on the forex market. This method is not as cheap as the first one. You will need a lot of dollars to defend naira. Unlike just "law" under the fixed exchange rate system.

Method 3: don't worry about your currency but make sure you sell what commands respect on the world market. Things like computers, aircraft, warfare, automobiles, etc command lots of respect. Things like cocoa, rubber, oil, plastic, etc command price too, but little respect.

Method 4: redenominate your currency. Cancel some zeros from the existing denominations and your currency is strong overnight. This is the laziest way. But it works perfectly.

Now about Nigeria.

Methods 1 and 2 require a lot of foreign reserves to succeed. Nigeria is struggling with its reserves at present. $40 billion or so in the reserves is nothing to celebrate. That was why CBN technically devalued naira this month.

Method 3 requires long-term commitment. It is not for countries that are struggling with how to control overt corruption. Not for countries that are yet to rank intellectual brilliance over federal character. Not for countries with clueless presidents.

It is for serious countries that understand that there is life beyond oil. That value human existence. That have strong pursuit of success. That elect leaders to solve difficult problems. These serious countries include Singapore, China, US, Japan, South Korea, Canada and Germany

If Methods 1, 2 and 3 will not work, we are left with only Method 4. We simply have to accept our fate. We are lazy and we should use lazy method. Nigeria has to redenominate its currency notes. It is a matter of emergency. We do it now or later.

Are there countries that have tried Method 4 before? Yes, Ghana in 2007. Ghana redenominated its Cedi when it was struggling with economic crisis and galloping inflation. It buried the shame in July 2007 and introduced new Ghanaian cedis with four zeros cut off former notes.

People were skeptical about what Ghana did. How could Ghana make ¢10,000 equal to ¢1 overnight? The normal slang was: it won't work.

Lo and behold, 13 years after, Ghana is not regretting. $1 = GH¢ 5.77 as of this morning. It worked for Ghana. It can work for Nigeria too.

Has CBN thought of this before? Yes in same 2007. CBN proposed to cut off two zeros from our naira in August 2007. Just to do what Ghana did. The public campaign and orientation started in September 2007.

Let me quote what our apex bank said that year: "we are redenominating because the fundamentals of our currency structure require a new direction." CBN said this when $1 = N120

Have we got the new direction? Certainly no. Those fundamentals are still there till today. The fundamentals are just that Nigeria is too small to float naira and be using its hard-earned reserves to defend it all the time.

The agenda was that, by August 2008, the highest denomination in Nigeria would be 20 naira. Just like it was until 1991. All goods and services worth N2000 would be N20. What was worth N1000 would become N10. N20 would turn to 20k. And so on.

Our goods and services would have small prices attached to them. All small notes would have big power. Coins would have its value restored. Exchange rate against dollar would naturally fall and stay low.

But people without faith whispered to CBN that it would not work. They were even mocking Ghana. People in power showed strong head. In less than three months, the idea was thrashed.

But Ghana that we mocked was doing fine and is still doing fine. At least in relation to exchange rate. Ghana bottled the shame of redenominating its currency and is enjoying the fruit 13 years after.

It's not too late for us. We can retrace our steps. We have to bottle the shame. We have to knock off two zeros from our naira notes. Otherwise, we will just be doing aspire to surrender on currency matters.

End.

@FinPlanKaluAja1 @aoteh @nevinomics @MoghaluKingsley @asemota