Ijeoma Nwogwugwu
15 August 2007
Lagos — The policy direction introduced by the Central Bank of Nigeria yesterday for the treatment of the Naira will most certainly have wholesale consequences on the manner Nigerians and foreigners conduct transactions in the months ahead.
Although largely seen as an accounting exercise, the impact would be felt by businesses, and especially profiteering landlords, who over the years cultivated the habit of pricing their goods and services in dollars.
Given the Naira's alignment with global markets come August 1, 2008, the preferred currency to hold will be the local currency, as businesses which preferred to conduct transactions in foreign currency will no longer have to hedge against sudden currency fluctuations.
For the man on the street, the psychological impact of seeing his disposable income drop by two zeros should be comforted by the fact that in nominal terms nothing will actually change, as prices of all goods and services will witness a corresponding drop in value.
Further, with effective inflation targeting by the Monitory Policy Committee of the Central Bank, this should facilitate planning and investment in a sustainable manner. More significantly, long-term savings in a low inflation economy will be enhanced, thus making it possible for banks to lend money at lower interest rates and for longer tenors.
In the area of international trade, imports will become cheaper for traders and businesses that are import dependent. Conversely, exports from the country will become more expensive and could make the country less competitive, except the government reforms its fiscal policy regime to attract more internally generated revenue from taxes and levies.
By implication, if foreign exchange receipts dwindle due to dearer exports, the government will be in a tight spot to fund its projects and lead to deficit spending.
In next couple of months, confusion will certainly abound and heated debates will be held across board as people come to grips with the new direction for the Naira.
The Central Bank will have a lot on its plate enlightening and assuring the public that the redenomination of the Naira will not amount to a drop in the net worth of people's assets.
At least the public can take comfort in knowing that Nigeria will be reverting days gone by when a small sedan car would no longer cost millions of Naira to purchase.
Be the first to Write a Comment!
Copyright © 2007 This Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
