*Letting go of the subsidy on Naira coupled with right trade policies to support and create incentives for massive exports of finished, value-added goods from Nigeria will refocus the economy 鈹�Prof. Kingsley Moghalu, former Deputy Governor of Central Bank of Nigeria

Alexander Davis | 绿帽献妻

Nigeria, a leading country on the African continent, has a big, profitable economy and market in which Dollars will likely swamp the market seeking profits for investors.

Prof. Kingsley Moghalu, a former Deputy Governor of the Central Bank of Nigeria (CBN) and ex-presidential candidate, who stated this at a recent forum also called on CBN to stop subsidising Naira in order to increase the worth of the national currency.

绿帽献妻 gathered Prof. Moghalu recently noted when this happens, the laws of demand and supply would work in favour of the Naira.

The erstwhile CBN chief also stated besides this measure, maintaining different exchange rates for different kinds of transactions must end in the Nigerian economy.

He referred to this as 鈥榬ate convergence鈥�.

Moghalu said: 鈥淲hat should we do about all of this? As I have said before, and say again, we have two options. One is to let the Naira find its level in the market.

鈥淚n order, words, the CBN should stop subsidising the currency.

鈥淲hile there will likely be an immediate spike in the price of the Dollar, this move will have two advantages.鈥�

He further noted 鈥渢he first is that, because Nigeria has a big, profitable economy and market, Dollars will likely swamp the market seeking profits for investors.

鈥漌hen this happens, the laws of demand and supply will work in favor of the Naira. Alongside this, maintaining different exchange rates for different kinds of transactions must end. This is called rate convergence.鈥�

The second and more important benefit, according to him, is since the current practice of the CBN pumping Dollars in the FX market (from the reserves, which also depleted them) is essentially a subsidy for imports, which has made Nigeria more and more import dependent, letting go of the subsidy on the Naira will refocus the economy towards exports.

He further stressed this would create an incentive for complex production of a quality that can be competitive in the international market.

Accompanying this must be the right trade policies to support and create such incentives for massive exports of finished, value-added goods from Nigeria.

Moghalu also stated: 鈥淚f we don鈥檛 want to go this way, perhaps because of the political risk of an immediate further drop in the Naira value (which will recover in the medium to longer term if the right policies are pursued), we can consider dollarisation of the Nigerian economy.

鈥淗ere the Dollar officially becomes a legal tender in Nigeria, either replacing the Naira or alongside it.

鈥淐ountries such as Panama, Liberia, Ecuador, Zimbabwe have done this. This鈥檒l lower interest rates and help deepen the financial sector because we are a high inflation country.鈥�

He said: 鈥淏ut this carries serious consequences too. Nigeria will lose monetary autonomy (our central bank will no longer be able to take independent decisions on interest rates for example).鈥�

According to him, the CBN will lose seigniorage, the revenues it earns from issuing currency from the difference between the face value of the Naira and its production cost.

As regards the objectives of CBN, he reportedly said:聽 鈥淭his is why, among the five main objectives of the Central Bank of Nigeria we 鈥渋ssue the legal tender currency in Nigeria鈥�, and 鈥渕aintain external reserves to safeguard the international value of the legal tender currency鈥�.

鈥淪o if we don鈥檛 diversify but continue to rely on crude oil as a mono -product economy, the Naira crisis will get worse, not better,鈥� adding, 鈥渦nfortunately, achieving a diversified, complex economy, especially in a resource dependent economy, is not easy.

鈥淚t requires a high level of knowledge, political will and consistency in economic policy and takes decades to achieve.鈥�

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