The complexity of currency management in a challenged economy like that of Nigeria and local currency the Naira cannot be over emphasised. There are multiple economic indicators and factors ranging from inflation rates, interest rates, economic growth, trade balance, political will and stability and market sentiments responsible as determinant for the real value of the Naira.
Recently, the governor of the Central Bank of Nigeria while anchoring a meeting talked about the undervaluation of the Naira as one of the key indicators responsible for the poor performance of the Naira in the forex and the alternative markets of the economy.
I would like to start this conversation by commenting on the lack of political will to do the needful in terms of the fiscal policy management of the economy.
Granted that we currently have a mono economic sustainable income through the rent collections on sales and exploration of hydro carbon; other countries and economies are not so fortunate to have this, outside a few, others are landlocked with zero natural endowment.These countries yet are able to manage their currency by putting measures in place for the possession, holding and handling of foreign currencies.
To start with the political will to take fundamental decisions on a simple process of regulating the acquisition and holding of foreign currency, particularly the dollar would need to be revisited. The challenges currently in the financial system is; if the monetary authorities decided to make available the sum of a trillion dollars into the economy, it would be mopped up within 24 hours. This is so because majority of the affluent Nigerians actually have vaults within their households; where currency arestored either for speculative motives or for illicit trading and value enhancement of private wealth outside the banking system.
To further compound this, the lack of enforcement and regulatory authorities to take to task some supermarkets and schools transacting businesses and payment of school fees only in Dollars should be viewed as economic crimes against the state.
Government should be able to put in place modalities to regulate currencies that would expose their currencies to speculation, manipulation and outright delegitimisation of their fiat money. It is an economic crime in other countries to trade, pay fees, and carry out any financial transactions in any other medium of exchange other than the national currency.
The Nigerian currency is the most abused and denigrated currency in the world and this reflects on how the currency is treated in preference to the Dollar. In most cases, grafts and gratification are offered in the currency of choice, where officials demand such only in Dollars.
The government must come alive to her responsibility of protecting the national currency by enacting proper legislation to protect the sanctity of the Naira and upholding the tenets of the Basel lll accord; namely, all currency must go through the banking system in other to create paper trail for the avoidance oflaundering proceeds of illicit activities like kidnapping, drug smuggling, child and women trafficking and gun running.
Haven said these, it would also be trite to leave behind the following thoughts that could help those in authority think outside the box and find creative solutions to the embattled Naira as a rescue mission in the course of finding the true value of the local currency.
Other vital areas of intervention are:
Macroeconomic Analysis: conduct a comprehensive analysis of the country’s macroeconomic indicators, including inflation rates, GDP growth (I do in all certainty disagreed with the GDP as a measure of any economy prosperity; the growth rate is only an academic exercise without the infusion of real growth lacking in any growth parameters) fiscal and monetary policies and balance of payments. This analysis can help determine the overall health and stability of the Nigerian economy.
Purchasing Power Parity (PPP): PPP is a method used to compare the relative value of currencies by analysing the prices of goods and services in different countries.
Comparing the purchasing power of the Naira against other currencies can provide insights into whether it is undervalued or abused.
Currency Account Analysis: it is important to examine Nigeria’s current account balance and net income from abroad. A persistent current account deficit may indicate an overvalued currency, while a surplus might suggest an undervalued currency.
Exchange Rate Regime: Nigeria currently operates a managed floating exchange rate system, where the central bank of Nigeria (CBN) intervenes in the foreign exchange market. The policy frame work of the intervention regime would create an insight into the value of the Naira.
Market Sentiment and Investor Confidence:assess and evaluate the perception of investors and market sentiment towards the Nigerian Economy. Are investors able to repatriate their profits and possible proceeds? Note that negative perception would harm the economy and erode the value of the Naira.
Mismanagement and Misapplication of Resources: the gross abuse of office and the grand theft of developmental funds placed in the custody of fund managers has a huge effect on the local currency.
Such thefts are being perpetuated and the proceeds changed into foreign currency for ease of concealment and exchanged at speculated rates. The multiplier effect is the pressure on the local currency and subsequent inflation and the corroding effect on it,
No doubt, these are economic crimes that require political will devoid of ethnic sentiments to tackle effectively.
Econometric Models: Utilise econometric models and statistical techniques to estimate the equilibrium exchange rate of the Naira based on economic fundamentals. These models may consider factors such as inflation differentials, interest rate differentials and trade imbalances.
Consult Experts: seek the opinions and analysis of economist, financial organisations, treasury professionals and if need be, international organisations that specialise in currency valuation and economic forecasting. Their expertise and research can provide valuable insight into the true value of the Naira.