Baffa Kabiru Gwadabe, PhD
When I first saw the news, I was overwhelmed by the efforts of Mr. Cardoso as the apex Bank Governor trying to stabilize the Naira. In the news cover, it was reported that “the Presidency has warned Forex speculators to discard their Dollars, saying that the Naira will soon appreciate”. But the above statement was said to be made by the President Bola Tinubu’s Special Adviser on Information and Strategy, Mr. Bayo Onanuga, through his Twitter (now X) handle on Thursday 21 March, 2024.
Mr. Onanuga urged Dollar speculators to quickly dump their Dollars to avoid ‘tears’ that may ensue after continued appreciation of the Naira. Mr. Onanuga was reacting to the recent disclosure by the CBN that it had cleared $7 billion foreign exchange backlog inherited by the Bank.
The development was confirmed by the CBN’s Acting Director, Corporate Communications, Mrs. Hakama Sidi Ali. According to her, the CBN had employed the services of Deloitte consult as an independent audit company to judiciously assess the forex backlog claims and all valid claims based on the recommendations of the company were settled by the Bank. She further indicated that all invalid claims or transactions were referred to the relevant authorities for further investigation.
Similarly, the above efforts, coupled with others such as the seeming ‘credibility of the CBN’ in keeping to its policies have made the Naira to appreciate to some levels and also to the rise in Nigeria’s foreign reserve to $34.11 billion early this month, which is almost the highest recorded since the last 8 months. This is welcoming for Nigeria as import-dependent economy and led Mr. Onanuga to talk to speculators in his tone of ‘Dump Your Dollars’. The ‘dumping of the Dollars’ is my point of entry from which I want to make some remarks.
Let me start by saying or informing Mr. Onanuga that the Dollar crisis in Nigeria is beyond speculations. To a greater extent, it is an issue of ‘store of wealth or value’ using the Forex, specifically the US Dollar. Many Nigerians that had the opportunity of accumulation of ‘large wealth’, try their ways in ‘safe-keeping’ same by converting certain amounts of Naira to the Dollar or other major currencies like the Euro, the Sterling Pounds etc. This has remained the practice in the country and has reached the extent of what I called the ‘unconscious journey’ or the ‘hardened behaviour’ of not seeing the Naira as any promising currency that is stable. In other words, the Naira will always keep depreciating.
With the kinds of policy efforts by the CBN and the Federal Government, this behaviour or trend may have its last gate. What I am saying, in short, is that the practice of scouting and safe-keeping of the Dollar at whatever rate to keep in ‘graveyards’, ‘underground safe-tanks’, ‘security safes’, ‘travelling bags or brief cases’, ‘laundering overseas’ and ‘deposits in commercial banks’ to mention but a few storage strategies of the Dollars may be curtailed.
I now ask some questions regarding the calls for ‘dumping’ by Mr. Onanuga. If Nigerians that had scouted and stored the Dollars were to repent and bring out some or all of their stored Dollars, where should they dump them? Is the dumping ground ‘safe’ without creating a new round of speculations and corruption? Are the dumpers ‘safe’ from stigmatization and punishment? Are the dumping sites going to be the CBN like during the New-Old Naira notes swap, the commercial banks or the BDCs or new hubs? Will the Dollar holders be allowed to spend the Dollars domestically for their transactions? The questions are many and could go on and on, but I stopped at just number 5, as other people may ask some more questions.
For some of the questions asked above, the answers may be very clear, just like the water colour in the day time. All that is needed in answering those questions is for the CBN and the Presidency to be more proactive and strategic enough in handling the long-standing crisis of the Dollar. This is just to say that there is a better need for change of strategies and operations.
The duo should greatly be reminded of the popular saying that ‘once-beaten, twice shy’. I hope to focus specifically on providing only 2 answers based on my little understanding and focus of the rejoinder, the ‘dumping of the Dollar’ and the ‘domestic spending of the Dollar (dollarization)’.
The dumping should strictly be accommodated by the CBN and new accredited dealers or service providers that are trustworthy other than commercial banks or the BDCs. The commercial banks and the BDCs had been tried and tested at different times and different exchange rate regimes but have failed in their own domains. For instance, most commercial banks hoard, receive bribes, kick-backs, brokering or profit from the CBN official Dollar allocations, thereby further widening the gap between the official rate and the black-market rates.
For the BDCs, they are the agents, on many occasions, that served as the foot-soldiers in scouting and mopping-off all the available Dollars in the market with huge Naira for their clients and launder same in some instances.
Additionally, the Binance crypto market speculations of the rates appeared to be new in the perpetuation of Dollar atrocities in the country but still cannot be ignored.
On the answer to the question of spending the stored Dollar domestically, the answer is a resounding yes. Those with Dollar currencies in their possession should be allowed to transact at accredited points and this will ensure more liquidity of the Dollar domestically and reduce demand pressure to squash undue speculations and arbitraging. Allowing the Dollar to co-exist with the Naira in the domestic economy at reasonable scale is called ‘partial dollarization’. This is important because the Dollar in Nigeria based on the recent happenings and the CBN’s approaches is ‘strangled’, ‘suffocated’, ‘compressed’, and ‘thirsted’ for the Naira. So, what the Dollar now needs the most include but not limited to ‘some breath’, ‘exit-doors’, ‘chimneys’, ‘exhausts’ and ‘water’. So, Mr. Onanuga, the issue is not only about the ‘dumping’ but the provision of ‘sustainable dumping sites or exit-doors or chimneys for the strangulated Dollar’.
Moreover, I know some economists and others will question the very proposal of ‘partial dollarization’ of Nigeria, where Dollar will be used as a medium of exchange in addition to the Naira. Their major argument will be that the ‘partial dollarization’ will jeopardize Nigeria’s CBN monetary policy autonomy, because the CBN has no control over the Dollars that will be in circulation in the country. This is very true but with proper monitoring of the inflationary trends, this can be dealt with but it is good that I remind my colleagues in Economics of the concept of ‘unholy trinity’; where it is practically not possible to control the trinity at the same time. The unholy trinity is made up of the fixed exchange rate regime, independent monetary policy and free capital movement (see Figueredo et al., 2023).
Therefore, dollarization is necessary for Nigeria as it has already been practiced in many countries in the World and is one of the hidden secrets for their stable exchange rate systems or regimes. For those that visit countries such as the UK, US, Turkey, UAE, China, Germany, Saudi, Japan etc, they find at the airports currency exchange boots to convert currencies at ease and also realize at some hotels and malls or restaurants, price menus being quoted in 2 or more currencies for one to choose. Therefore, Nigeria should start its own journey.
On a final note, let me make little summary in bullet points to fine-tune the statement by Mr Onanuga that says ‘Dump Your Dollars’ but the ‘dump’ should be in this order:
- Dump your Dollars with the CBN at its various State offices and Headquarters;
- Dump with new aggregators to be approved by the CBN for onward submission to the CBN at a much regulated and controlled service charges;
- Dumpers or depositors of the Dollars must not have domiciliary accounts but for those that have one, part of the amounts could be lodged into the accounts;
- Domiciliary accounts in Nigeria need to be reviewed with a view to embracing the best global practice for the stability of the Naira;
- There should be authorized currency exchange boots at major International airports in the country for small exchanges, like buying and selling of not more than $1,000 or so for travelers in and out of the country.
For the case of ‘partial dollarization’, the following are recommended:
- Real estate or physical assets and automobile dealings could be accredited to receive Dollars under stipulated guidelines and this will ease their trouble scouting for Dollars for their imports;
- Major shopping malls and stores, restaurants, hotels/suites, hospitals (private), pharmacies, schools (private and all categories) should be accredited to receive Dollars under the CBN stipulated guidelines;
- Entertainment industry and certain concerts in major cities of Nigeria such as Lagos, Kaduna, Abuja, Portharcourt, Benin, Kano, etc should be allowed to receive Dollars for their gate fee charges under the CBN stipulated guidelines.
Thank you and see you next time.
Dr. Gwadabe (Baffa) is an academic staff of Bayero University Kano, Nigeria, from the Department of Economics. He can be reached at: bkabirugwadabe@gmail.com
