Godwin Emefiele, Governor Central Bank of Nigeria (CBN) is a man of insight passionate about quality decisions in his tasks of targeting inflation, ensuring interest rate stability, and employment generation to fully support productivity and society. These roll on the back of quality decisions to achieve macroeconomic stability to push the frontiers of the economy for sustainable growth and economic development. The most recent action in the Nigerian monetary policy authorities is the eNaira.
President Muhammadu Buhari launched Nigeria’s digital currency at the Presidential Villa, Abuja on Monday, October 25th. In announcing the launch of the e-Naira, the CBN stated that the product, which was put together following many years of research, would advance the boundaries of the payments system in order to make financial transactions easier.
With this launch, Nigeria, Africa’s largest economy in terms of GDP and the continent’s most populous country (over 200 million inhabitants), is a pioneer on the continent, alongside Ghana, which has been testing its e-Cedi as a new means of exchange since September.
“We have become the first country in Africa and one of the first in the world to have introduced a digital currency for our citizens,” said President Buhari.
According to Mr Emefiele, the eNaira would support a resilient payment ecosystem, encourage rapid financial inclusion, reduce the cost of processing cash, enable direct and transparent welfare intervention to citizens and increase revenue and tax collection. He said eNaira would also facilitate diaspora remittances, reduce the cost of financial transactions, and improve the efficiency of payments.
“Therefore, the eNaira is Nigeria’s CBDC and it is the digital equivalent of the physical naira. As the tagline simply encapsulates, the eNaira is the same naira with far more possibilities.
“The eNaira – like the physical naira – is a legal tender in Nigeria and a liability of the CBN. The eNaira and naira will have the same value and will always be exchanged at one naira to one eNaira.”
eNaira benefits include:
The e-Naira is expected to foster economic growth by offering easier access to capital and financial services which will increase economic activities at low/no interest transaction rates.
It is also expected to provide secure and cheaper diaspora remittance options and make such transactions faster.
Due to its traceability, the e-Naira makes it more difficult for individuals or organizations to indulge in fraud.
While the impossibility of being forged, makes it very strong and reliable, the e-Naira provides financial inclusion by making financial services available to communities without enough banking opportunities.
Local and international trade is expected to be increased with the emergence of the e-Naira, and the nation’s digital currency is expected to aid revenue collection by reducing the cost of handling cash.
Thus eNaira is Part of the CBN’s strategy to enhance the country’s macro-economic stability. Notably, macroeconomic stability eliminates uncertainty in economic activity, increases the country’s investment attractiveness, as well as increases the economic activity in the future. The level of macroeconomic stability is the key to assessing investment risk. The greater the level of macroeconomic stability, the greater the market confidence and propensity to take risks. In the period that Mr. Emefiele has been in the saddle, the CBN has been aggressively pushing strategies to ensure that the level of macroeconomic stability increase.
Crucially, the Nigerian economy is factor-driven , just it is monolithic. Oil contributes more than 80 percent of foreign exchange earnings, a development that readily exposes the economy to shocks. The economy is also largely import-dependent without much production. Then there is a heavy reliance on fuel importation. These show serious fundamental flaws in the economy. It was reported that the economy recorded the highest import bill of N6.85 trillion in twelve years with a 54 percent increase during the first quarter (Q1) 2021. Equally, the trade deficit stood at N5.81 trillion in first half (H1) 2021.
There is also the challenges of the inability of the country to issue debt in local currency and reliance on external grants and concessional loans to fund government deficits and capital spending .
All these places a lot of burden on the economy and even the value of the Naira. So exchange rate issue gradually becomes a sore point. This has caused many to raise concerns over the health of the economy, even as CBN has been aggressive in formulating policies in the management of both the demand and supply of the intractable foreign exchange challenge. CBN is doing its best here to ensure macroeconomic stability.
The exchange rate is the price of one currency in terms of another and it is the backbone of international trade. It helps to determine the health of an economy and the well-being of citizens through the quantum and ratio of imports and exports. A country’s exchange rate is determined by its foreign exchange earnings, by its production and export as well as external reserves, and a number of variables interplay in the dynamics of foreign exchange.
In the absence of strong productivity and huge oil import, the Naira weakens. And this has led to strong criticisms of the Central Bank of Nigeria, CBN and its Governor Mr Emefiele. And while concerns rage over exchange rate issues, some observers also point out that there seems to be no synergy between fiscal policy of government and CBN’s monetary policy.
This is true, of course. Many economists and private sector leaders see the need for more synergy between fiscal and monetary policy. The Executive branch is responsible for that. The CBN is charged with formulating monetary policy to complement the fiscal policy in the attempt to grow the economy, control interest and exchange rates and curb inflation while aiming to provide jobs.
And lately, Vice President, Professor Yemi Osinbajo has also voiced his concern over this lack of synergy . He felt the CBN is intruding into the terrain of fiscal policy, which is the exclusive forte of the executive. He recently observed.
“There must be synergy between the fiscal and monetary authorities. We must be able to deal with the synergy; we must handle the synergy between the monetary authority, the CBN, and the fiscal side.
Sometimes, it appears that there is competition, especially on the fiscal side. If you look at some of the interventions, you will find that those interventions are interventions that should be managed by the ministries.
“The Ministry of Industry, Trade and Investments should handle MSMEs (micro, small and medium enterprises) and we should know what CBN is doing. In other words, if the CBN is intervening in the MSME sector, it should be with the full cooperation of the Ministry of Industry….”.
Of course, in recent times, the CBN has involved in a lot interventions in order to stimulate local production , maximize the potentials of the economy and achieve the goals of macroeconomic stability. CBN Governor Emefiele is well aware that in the absence of any coherent, comprehensive and comprehensible fiscal policy, he has to act to prevent economic crises. And that he has been doing.
Of course, just as it is a primary duty of CBN to formulate monetary policies to drive the economy, there are also some fundamental and aberrant factors inherent in the economy that damp some policies, aimed at stimulating energetic inflows and pushing the frontiers of the economy further.
Until those fundamentals are tackled, the economy may continue to witness exchange rate instability. It is well known that the economy is factor-driven and monolithic, with crude oil contributing more than 80 per cent of foreign exchange earnings. Then the economy is import-dependent.
Ordinarily large scale importation is good because it indicates that an economy is robust. It also offers citizens wider product choices even at cheaper rates. But it becomes problematic when it is not matched with a robust manufacturing base, exports and other services such as tourism which promote foreign exchange inflows.
Other challenges of the economy include what development economists call the commitment of “original sin,”which is the inability of a nation to issue debt in local currency and reliance on mostly external grants and concessional loans to fund government deficits and capital spending and which tended to pass currency risk to customers. CBN has been aggressive in formulating policies in the management of both the demand and supply of the intractable foreign exchange challenge.
Some of the policies such as the prohibition of 41 items from the Interbank foreign exchange market and the establishment of the Importers’ and Exporters ‘ (I&E) FX Window made reasonable impacts until the situation was exacerbated by the COVID-19 pandemic which crashed oil price and distorted the trajectory and momentum of the economy.
Also CBN introduced the dollar for naira policy to stimulate inflows. The policy offers a rebate of N5 for every $1 of remitted funds to Nigeria. This is expected to drive Diaspora remittances. While some analysts are optimistic that it would create impact on inflows, others believe it would not.
Sometimes ago, in a press report, Professor of Economics at Olabisi Onabanjo University, Sheriffideen Tella noted that “it won’t have any major impact on Diaspora remittances.”
According to him, “the first thing is that the amount (N5) is too small to attract those living abroad to start sending money home.” But CBN Governor, Godwin Emefiele, noted that remittances improved from a weekly average of about $5 million to over $30 million per week through the Bank’s foreign exchange initiatives.
The CBN has taken all these decisions to save the economy. This is why some observers wonder at Vice President Osinbajo’s comment on Emefiele and the CBN. Expectedly, many objective observers are asking questions. Is this fair to CBN? Is the portrayal of Mr Emefiele, a true reflection of what has gone on the last six and years?
Notably, in any economy everything revolves around the formulation and execution of a fiscal policy. Was there one? When was it announced? And when did implementation start? These are observers have raised. They are of the view that there is lack of coordinated fiscal policy. This is what has necessitated CBN’s interventions, they say.
These observers point out that in the last few years, the Federal Government has failed to set out clear fiscal policies in the annual budgets. All they is done is to announce how much would be spent and the sector allocations. No single budget address has included the fiscal policies that would underlie the attempt to achieve the objectives stated in the budget – particularly, the GDP growth target. This explains why Nigeria has missed the growth target for six years in a row.
Normally each budget revolves round targets which the country sets to achieve each year. Everybody will then be made aware of the Budget Thrusts or priorities for the year.
Ordinarily this happens as the Minister of Finance addresses top public officials, with the leaders of the Organised Private Sectors, OPS, Banking, Labour, Academia and the International Community being on seat. Then the minister will lay out the regime of taxes, duties, tariffs, fees, surcharges etc expected to yield the revenue projections. Expectedly, the address will announce the changes to the list of products imported or exported.
But so far, this has never happened since 2015. And since the CBN has the task of ensuring macroeconomic stability, it has to act to avoid exchange rate problems. Then its interventions, in the Nigerian economy is to grow the MSME, with effectiveness of some policies which aim at stimulating energetic inflows and pushing the frontiers of the economy.
Emefiele knows that a badly mismanaged economy results in exchange rate problems; that sooner or later devaluation of the currency will be the only option left. In the absence of any coherent, comprehensive and comprehensible fiscal policy, he had to act to prevent worse deterioration of our position.
It should be recognized that macroeconomic stabilization is important for the development of enterprises. The economic situation and its level in the future have a fundamental importance for economic activity.
The purpose of a stabilization policy, including a combination of fiscal and monetary policy is to alleviate fluctuations in business cycles, which is supposed to lead to lasting economic balance. However, it should be emphasized that from the point of view of sustainable development, political decisions, economic conjunction, social and ecological crises should also be taken into account.
Overall, the apex bank has done well to initiate notable policies aimed at pushing the frontiers of the economy while ensuring microeconomic stability on the watch of Mr Godwin Emefiele.
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