An insight into the Naira plunge

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The Naira has, during the last several months, experience a downturn. It has been trending down, becoming almost worthless to the attention of economists and policy makers. Policymakers seem not to understand the economics of currency or are deliberately shying away from the solutions. I think the latter. Nigeria is so entangled in the art of politics. To them, politics is about who makes away with what. Whereas, the ideal reason for politics is to institute some form of ‘competitiveness’ and as a result bring out the best, to better the lives of the people. That’s a story for another day. In this piece, we shall attempt to bring to the foreground the dwindling, reasons and possible solutions to the plunging in the Naira value.

Naira has been experiencing a continuous blow for the last several months. The plunge started from late April, 2015, making one to have the tendency of associating the fall with the change of government. Politics is one of the major determinants of a currency (apart from production). Investors are weary of the government because they know that the government says who does what and when. And of course, investors are also interested in economic decision prowess of the said government.

Another important factor that affects a currency is the productivity of that country. In the international scene, it is not about how much of your local currency you have. It is about how much of Dollar do you have. And of course, for you to earn dollar, you must have been able to produce what people need. What do you produce to solve a problem in the world? How sound, corrupt-free is your financial institutions? People think that a government can set, artificially, the value of her currency. Ghana did it with their ‘New Ghana Cedi’ and today the currency is fast settling back to its ‘natural’ level. For your currency to appreciate, you have to operate a productive economy and not only productivity but producing what the world needs. America produces technology and agriculture. Japan also produces technology. Check all developed nation, there must be something they produce that is maintaining their currency. Over-valuation can also be a problem. For an exporting country like Japan, the Bank of Japan is constantly intervening into their currency whenever its over-valued. Exporting countries can also have problems. It is the duty of the apex bank to strike a balance between devaluation and overvaluation.

Yea, you guessed right. Nigeria is not a producing country. Because of that, some index companies like J.P Morgan have chosen to disassociate from them. The financial system is corrupt, decision makers have no clue, the economy lacks basic amenities that will facilitate production e.g electricity. etc. They have overblown the problems beyond proportion and make it seem like it is irredeemable. sometime last year, the apex bank devalued the Naira. That begs the question ‘why did they do that?’ The only reason to devalue is to encourage export’, in the case of Nigeria, ‘export what?’ Politicians are even aiding in the mess. An average politician will chose to store his wealth (stolen wealth) in dollars, ‘selling’ the Naira, which further plummets the Naira. I liken this problem to that of an elephant in a room. where everybody feigns ignorant, pretending that they don’t have an idea of the elephant. I think they all know the solutions to the problem (do they?).

Squashing this problem is not a rocket science. First things first. The government should understand the problem. Since one of the major clog in the wheel of development in Nigeria is the lack of electricity. People know what they want to do, economically. But lack of electricity is hindering their developmental plans. The onus is now on the government to provide this basic amenity. Provision of electricity will have a ‘multiplier effect’ in the sense that once electricity is made available, other sectors of development will be ‘awaken’. This will now extend to the international sector. Things we import, that devalues the Naira, will be produced internally and the currency is profitably stable.

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