Mr Emefiele's grasp of basic economics is abysmal. Cash in circulation does not fuel inflation.
It is no longer news that the Central Bank of Nigeria has botched the latest attempt at redesigning the nation's currency. Nor, given what was known about the level of preparedness of the relevant institutions at the exercise's onset, has the restiveness that has attended the banknotes swap come as a surprise. Still, the ferocity of the streets' response, especially the wanton destruction of property that has taken place, shocks. Doubtless, the Central Bank's incitement of bank depositors against commercial banks - claiming they were the ones hoarding the new banknotes - worsened these outcomes.
The breakdown of relations between the president and state governors, and recourse by sections of the latter cohort to litigation at the Supreme Court to compel CBN to reinstate the old banknotes as legal tender was just as unseemly. Unsurprisingly, concern around the near-term health of the Fourth Republic coalesced around hope that the meeting late last week of the National Council of State (NCS) would somehow present a silver bullet to fix the problem.
Official numbers may not be out yet but the implications of this failure of monetary policy for consumer spending are that the damage to the economy will take a long time to fix. Back-of-the-envelope estimates already speak of output losses as severe as 3 percentage points in an economy where much of the growth projected for this year is about 3.2 per cent, according to the International Monetary Fund. Nonetheless, the strongest headwinds in the country's path today are of a political character.
Last week may have produced one of the most frightening weekends in the life of the Fourth Republic. A fact which underscores the even scarier admission that Nigeria's democracy may be facing an existential crisis. Less than two weeks to a general election, what responses are now appropriate to a problem of this magnitude?
Previous calls by this newspaper for the replacement of the Central Bank governor have been met by worry that a change of helmsman in what is arguably one of the nation's most important institutions, during a political transition as fraught as the current one promises, is ill-advised. Unfortunately, either through his earlier misguided, and eventually abortive, bid for political office, his utter disregard for the laws governing the operation of the CBN or in his management of the ongoing banknotes swap, Mr Godwin Ifeanyichukwu Emefiele has eerily proven himself a real and present threat to Nigeria's desire to manage itself normally.
It is thus easy to agree with the apt observation of the Nigerian Governors Forum, in its recent communique, that what Mr Emefiele and CBN are operating is a currency confiscation programme, in which banknotes have been seized from the public, without the intention of giving it back to them, thereby exacerbating the level of tension in the polity at a rather inopportune period in our national life.
Mr Emefiele's grasp of basic economics is abysmal. Cash in circulation does not fuel inflation. In order to address inflation, the most effective tool in a central bank's kitty is its benchmark rate. Through his arbitrary debiting of banks to meet his equally arbitrary sense of banks' cash reserve ratios, he has severed the transmission lines that connect the Central Bank's monetary policy rate (MPR) to retail rates in the financial services sector. His understanding of the concept of the rule of law is louche at best. He still struggles to understand how his wanton breaking of the law on ways and means advances to the federal government is no different for its impact on the health of the polity, from the rioters who sought to compel banks to return their deposits by breaking and spoiling private and public property. He plays fast and loose with facts. Insisting that commercial banks were to blame for hoarding new banknotes that the CBN had supplied enough, only to turn around to admit that the Central Bank never printed enough in the first place. Against the backdrop of the needless loss of lives and damage to property that this latter foolishness led to, there are few legitimate arguments left for retaining the incumbent governor of the Central Bank in office.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
PREMIUM TIMES sympathises with the National Council of State's decision that more currency notes should be printed or the old notes should be brought back into circulation forthwith. We are, however, persuaded that in the light of the objective and subjective constraints that have come to light on the matter of banknotes swap, the most efficient solution is for the President to direct the immediate return of the old banknotes as legal tender until sufficient new notes are produced.
There is abundant evidence that cash is the lifeblood of the Nigerian economy, where the informal sector accounts for more than 84% of employment and close to a third of domestic output. There is equal evidence that Mr Emefiele's incompetent management of the monetary policy space has rendered the economy comatose. PREMIUM TIMES believes there is no better moment than immediately to infuse the economy with its lifeblood. But not before the pathogen is neutered.
