The concern raised by the House of Representatives over the gradual adoption of the US dollar for transaction in the country has caught the attention of money market watchers who fear the development may erode the confidence of Nigerians in the Naira, reports Festus Akanbi
From Oke-Koto in Agege, a suburb of Lagos, to other boisterous areas of the state including Apapa, Allen Avenue and Murtala Mohammed International Airport, Ikeja, it has been business as usual for the ubiquitous foreign exchange black marketers.
The situation is not different in Port Harcourt, the Rivers State capital, as the entrance to the famous Presidential Hotel is flocked by desperate and daring foreign exchange marketers. They offer irresistible exchange rates to their customers drawn from the banks, oil firms and government agencies.
In economic parlance, dollarisation of an economy occurs when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency as a store of value, unit of account, and/or medium of exchange within the domestic economy.
This is exactly what is happening in the country in a rather large scale at present.
A random survey carried out by THISDAY team at some of these black marketers' havens in Lagos last week showed that forex dealers draw their patrons from all classes of the society as rates were openly negotiated.
However, industry affairs commentators told THISDAY that the demand for foreign exchange, especially the American dollars, would continue unabated as long as some economic transactions in the country are done in foreign currencies.
Market watchers said apart from the activities of parallel marketers, the various bureaux de change licensed by the CBN have also been meeting the appetite of business men and politicians who have been compelled by the emerging dispensation to do transactions in dollars.
Payment in dollars
Already, some organisations including schools, upscale apartments, hotels and supermarkets in Lagos, Abuja and Port Harcourt are said to be insisting on payment for their services in dollars. One of the excuses advanced for this is the fact that their customers include Nigerians and foreigners who would not want to go through the rigours of exchanging their foreign currencies into naira.
The naira is the only legal tender in the country but in most parts of Lagos, Port Harcourt and Abuja in particular, lands are sold in dollars, prices of some products are denominated in dollars, school fees are quoted in dollars and hotels charges are collected in dollars. Some rents in highbrow areas of Lagos like Ikoyi and Victoria Island are quoted in dollars.
House of Representatives Kicks
Last week, the House of Representatives decided to beam its searchlight on the
foreign exchange market, insisting the growing dollarisation of the economy must be halted.
Interestingly, the CBN, which last year expressed its reservations for the growing appetite for dollar, had to make a u-turn last week when it stated it would not enforce the House of Representatives order to ban the use of dollar for transactions.
Last year, the CBN had raised the alarm that the use of dollar as means of payment or legal tender in the local market in Nigeria is seriously affecting the value of naira in as most Nigerians are fast losing confidence in the local currency as a store of value.
CBN Governor Mallam Sanusi Lamido Sanusi said the dollarisation of the Nigerian economy was of serious concern to President Goodluck Jonathan, the Central Bank of Nigeria, the Economic Management Team and everybody and that the CBN would come up with a policy to stop the practice.
He said that as a first step, CBN would soon stop the cash sale of dollars to bureaux de change, where members of the Nigerian public usually make their purchases of dollars in cash to make transactions within the country.
Sanusi, at the joint press briefing to mark the end of the 2012 IMF/World Bank Annual Meetings with Finance Minister and coordinating Minister for the Economy, Dr. Okonjo-Iweala, in Tokyo, Japan, said the idea of introducing the N5, 000 note was to check mate the practice of the movement of huge funds around the country in dollars. Sanusi's plan to introduce the N5, 000 currency note into the Nigerian market was halted by the federal government following heavy criticism against the move. He said the introduction of the N5, 000 note was to check the dollarisation of the economy by providing Nigerians with heavy cash transaction and a higher denomination.
Settling Old Scores
Given the hostility against CBN by the National Assembly, which had set the stage for the repudiation of the CBN's new N5, 000 policy, analysts see the current disposition of the apex bank as a pay back to a National Assembly, which has continued to stand in its way.
This was the position of the foremost financial analyst, Odilim Enwegbara, in an interview with THISDAY.
According to him, "We need to understand why after identifying all the grave consequences of having the economy dollarised, the CBN announced it is not going to enforce the ban. Is it because of the humiliation of refusing the N5000 note? I also supported any move to give the naira the same slimness the dollar and euro have so that the bulkiness of the naira and the associated high transaction costs as a store of value and unit of exchange can be drastically reduced."
The CBN governor had said, "People carry $10, 000, that is N1.5 million in their pockets. Seventy per cent of the dollars people buy from the BDCs is not for transactions outside Nigeria. They move dollars from one part of the country to another. In fact, from one part of Abuja to another. "In a brief case, you can carry a $100, 000. That is about N15 million. Now part of the logic for introducing higher denomination is to provide genuine high-value cash-users with a note that is a store of value as a first step towards our attempt to eliminate the use of dollar to move cash around because the dollar has became the second national currency".
The CBN boss, who revealed that even President Jonathan was worried over the development, said under the new policy to be announced shortly, transactions between the apex bank and BDCs, on the one hand, and between BDCs and their customers on the other would be done online. He explained further that those who honestly need to make payments outside the country would have the recipients paid directly from the bank accounts of the BDCs or take the option of buying travellers' cheques.
According to him, "We are worried about it. The president is worried about it. We are all worried about it and we are coming with a fresh policy to stop selling cash dollars to BDCs. "We will credit their accounts. If you want to pay for medical bills abroad, you give the hospital account. If you want to pay school fees, you do transfer like everybody else. If you want to travel, you buy travellers' cheque or get money on your cards, instead of people moving around with dollars."
Threats to Economy
Enwegbara, however, explained that the nation's currency is a symbol of nationhood. It's for this very reason that on the eve of America's independence war against Britain, Franklin Benjamin, had to confess that rather than protest against tea tax, actually "the inability of (Americans) to issue their own money permanently out of the hands of British King and the international banks was the prime reason for America's Revolutionary War against British." Little wonder upon winning independence, America's first treasury secretary, Alexander Hamilton, in 1791 suggested that printing America's own "debt-free money rather than being a curse will always be a national blessing.
"So, from this short historical perspective, it is clear that any country that bequeaths power to print and supply its own money has also bequeathed its sovereignty. Even as evident as it is that most independent countries that either use exclusively foreign currencies or use foreign currencies alongside their own local currencies are either economically weak or too small in population and territory. Countries such as Panama, Ecuador, Uruguay, Liberia, Haiti, Vietnam, and Somalia have never developed as they should have because they have chosen to dollarise their economies; in other words, had they not allowed the dollar as either the exclusive currency or currency circulating alongside their own currency in their countries, they would have been developed perhaps.
"Therefore, the grave consequences of allowing the dollarisation of our economy are as clear as all of us can see. From those countries practising economic dollarisation, we can see that rather than promoting those countries' fiscal and monetary discipline and macro-economic stability, it is the opposite that the dollarisation of their economies has caused them.
The presence of a dual-currency economy in Nigeria, we all know that by eroding the confidence Nigerians have for the naira, especially when the dollar becomes the best hedge against the naira, making inflation management difficult means the erosion of naira's power as the country's trusted store of value.
"As it plays out over time, to allow the dollarisation of our economy is to make the CBN lose its present monetary policy independence as well as lose control over exchange rate instruments. Not to allow the CBN to commit an effective counter-cyclical monetary policy means it cannot also stabilise the country's business cycle whenever that happens, which also means that by losing its role as the lender of last resort to the banks since it cannot print the dollar, the CBN cannot provide liquidity assurance to the banking system.
"In fact, it is this inability to stabilise the country's business cycle that makes the cost of using dollar in an economy increase exponentially. On the revenue side, the CBN will lose its right, the fees it charges mostly banks for printing, storing, and distributing naira."
While acknowledging the fact that the dollarisation of the economy reduces the possibility of systemic liquidity shortage, the analyst maintained that the fact that it also increases the domestic flight from local currency overrides such benefit.
"One of currency mismatches is the difficulty it presents in assets and liability on companies' balance sheets. From all the high cost the dollarisation of our economy could pose to us, it is welcoming to see the recent opposition to allowing the country allow the dollar circulate alongside the naira. That is why we should commend our lawmakers for their current move to ban economic dollarisation in Nigeria," he said.