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Finance experts insist that the monopolistic control of the foreign exchange market by the Central Bank of Nigeria creates many problems for the national economy

Monetary policy is intended to be a blend of measures and set of instruments designed by the Central Bank to regulate the value, supply and cost of money at a level that is consistent with the absorptive capacity of the economy without necessarily generating undue pressure on domestic prices and the exchange rate.  Its goals include the achievement of price stability, control of inflation and promotion of sustainable economic growth and development that would reduce unemployment. According to Obadiah Malifa, former deputy governor of the Central Bank of Nigeria, the monetary policy of the CBN has been directed at price stability, which has the effect of reducing manufacturing costs, raising the real income of the populace and enhancing the demand for goods and services that would enable the manufacturing sector to raise productivity and be in profitable business. 

However, the attainment of these goals has remained elusive over the years due to the faulty monetary policy plank of the Central Bank, which is based on the monetisation of the foreign exchange earned by the government.  Monetisation is the process whereby the CBN captures the foreign exchange earned by the government and prints the naira equivalent for distribution among the three tiers of government, namely federal, state and local governments. This process, which automatically confers on the apex bank a monopolistic control of foreign exchange market,  has been blamed for all that is wrong in the Nigerian economy as well as the pervasive corruption that holds sway in the public and private sectors.

Henry Olujimi Boyo, a Lagos-based economist and industrialist, said during a recent town hall meeting organised by the Save Nigeria Group with the theme “Endemic Corruption : the Bane of Good Governance,” that “the product of the CBN’s forex monopoly is the poison in the economy and is the causative factor of the plagues in the economy, among them are the high interest rate, high production cost, uncompetitive local products, high cost of fuel, contracting industrial space, rising unemployment, insecurity and increasing national debt.” According to him, the CBN’s monopoly inevitably leads to a “Naira Tsunami” and the situation whereby excess money exists simultaneously with a market shortage of credit to the real sector. Moreover, it is also responsible for the  depreciation of naira against the dollar.

“In fact, this obtuse payment system has boxed our economy into a framework that ensures that our people become poorer with increasing dollar revenue. This became starkly evident in 2007 and 2008, when Nigeria started being listed amongst the world’s poorest nations at a time we generated our best-ever dollar reserves of about $60 billion,” Boyo said.  

Furthermore, the galloping domestic debt level is also the product of CBN’s mop up of excess liquidity caused by its monthly “Naira Tsunami,” In addition, the CBN’s monetisation policy is also directly responsible for high interest rates that cripple industrial enterprise, increase production costs and make made-in-Nigeria goods uncompetitive. No thanks to CBN’s conscious instigation of high lending rates in spite of the reality of a depressed economy in need of cheap credits for industrial regeneration.

“Like an ostrich, the CBN can hide its head in the sand and pretend that all is well in its domain, while pointing accusing fingers at other sectors of public administration for the diminishing level of social welfare of our people. But the truth is that a framework that accommodates CBN’s monopoly of the forex market has seriously damaged our economy over the past 30 years. And it is clear that the sustenance of this poisonous framework will continue to pulverise our economy without let-up and deepen our social poverty,” Boyo said. He suggested the issuance of dollar certificates for the payment of dollar-derived revenue in monthly allocations so that the beneficiaries would approach commercial banks to convert their dollar certificates in naira.

The problem posed by the monetisation policy is also recognised by the authors of the Nigeria Vision 20:2020 - the economic transformation blueprint. It said that one potentially enduring solution that would avoid the creation of new money and boost the naira value in the foreign exchange market would be the allocation of foreign exchange earned from oil to the three tiers of government rather than monetising it.  

Mike Obadan, professor of economics, University of Benin, said the action of the CBN by creating new money increases the money supply and liquidity in the economy. He attributed the issues that have arisen from the monetisation of foreign exchange earnings to the nature and source of the foreign exchange earnings and the way the earnings have been managed and utilised. According to him, crude oil export, which is the major source of foreign exchange earnings in Nigeria, is controlled by the government. Were the private sector to control crude oil exports, like other types of exports, then under a deregulated foreign exchange regime, the foreign exchange earned would be sold in the foreign exchange market without creating liquidity surfeit.