DYEING A DYING CURRENCY

 

        The news of the change of the Nigerian currency came to us and we were filled with expectations of probably something much better. But we received a rebranded dyed form of our former naira notes.

This led to an uproar and high controversy amongst the citizens as they showed their displeasure to the dyed notes, thus leaving them with the question of why it is so.

    Maybe because our currency has suffered devaluation over the years, and rebranding the currency seems pretty much like the best way to correct it.

We have a rebranded currency, but will it solve our problem?

      Therefore, this article is set to intimate you about all that is there to know about this devaluation that has hit Nigerian currency, why it has happened, and if the rebranding of the naira is the best method to correct it. 

 THE DEVALUATION OF THE NAIRA

  Currency devaluation is a well-knotted noose that Nigeria is successfully winding around its neck, just waiting for the final kick from an avaricious government to the stool supporting its weight to asphyxiate. 

According to Merriam-Webster’s dictionary, devaluation is an official reduction in the exchange value of a currency by a lowering of its gold equivalence or its value relative to another currency. 

Before the creation of the naira, Nigeria made use of the Nigerian Pound which had replaced the archaic West African Shilling. In 1973, the naira (N) replaced the Nigerian Pound where N1 was equivalent to UK10 shillings. Chief Obafemi Awolowo handled the transition of the currencies, and coined (pun intended) the name “naira;” 10 naira became the highest denomination. 1977 saw the advent of the 20 naira note bearing the face of the assassinated general: Murtala Ramat Mohammed. Through the years, there were introductions of new notes, culminating in the 1000 naira note that is used today.

In 1960, the Nigerian Pound was equivalent to 0.71 dollars. After the creation of the naira, 1 naira had a 0.62 dollar equivalent. The Babangida regime of 1985 began the imminent plummet of the naira as 1 naira was exchanged for 1.75 dollars. Eventually, the structurally imperial policies pursued by the regime under the tutelage of the International Monetary Fund/ World Bank led to the devaluation of naira in 1994: 1 dollar was exchanged for 22 naira.

The fourth republic heralded a ludicrous fall in naira; 1 dollar was exchanged for 92.34 naira; 132.89 naira to a dollar in 2004. After the power baton exchange between President Goodluck Jonathan to President Mohammadu Buhari in May 2015, 1 dollar was exchanged for 199 naira. 

With the profound corruption and incompetence prevalent during that reign, and if the currency sector was a prerequisite for re-election, President Buhari would have lost. Yet he won again in 2019 and no sooner had he climbed his seat of authority than the naira fell: 1 dollar was exchanged for 360 naira. 

This succinct history tells a sad story of how a currency gradually fell due to many factors. It is pertinent to know the causes of a problem to proffer feasible solutions.

One of the major factors is the dependence on imported goods. Nigeria is still dependent on the importation of furnished goods to thrive. It’s comical how Nigeria is the 14th highest producer of crude oil yet it still struggles to import refined crude oil: petrol, kerosene, and other gases. This simply means that she produces crude oil, exports to other countries, and imports at higher prices after refinement. 

As of 2021, the highest imported category of goods was mineral fuel, oils, and distillation products valued at 16.14 billion dollars which is roughly 12 trillion naira by today’s statistics. Continuous disbursement of such funds would perpetually cripple the value of the country’s currency.

Furthermore, inflation is another factor that creates and heightens the devaluation of currencies. Inflation is a period where the money in circulation is comparably larger than the goods available in the market. Simply put, it is a situation where there is too much money chasing fewer goods. 

The monies stored at the beginning of the year lose their value as it cannot get the number of products it got at the beginning of the year, at the end. Example: At the start of 2022, a thousand naira note could purchase as much as 10 cups of beans. Presently, the same note can only fetch half the amount – 5 cups – in Akwa Ibom State. It is important to note that inflation is different from a recession, as a recession is said to be the slowing down of the economy which will be indicated by negative growth.

Likewise, debts are weapons to injure the currency’s value. Nigeria is in perpetual indebtedness to multilateral leaders such as International Monetary Fund, Afexim, and African Development Bank, among others. Bilateral leaders are in this mix: Japan, Germany, India, and France. In total, Nigeria owes about 42.84 trillion naira (103.31 billion dollars). 

With Nigeria’s population at 218, 348, 840 (two hundred and eighteen million, three hundred and forty-eight thousand, eight hundred and forty), it means each Nigerian owes these institutions and/or countries about 196,000 (one hundred and ninety-six thousand) naira. It’s laughable and sad.

In addition, political instability is another foundation of currency devaluation. With the recent insurgencies and the recurrent communal wars that lead to the destruction of lives and goods, it discourages a lot of investors from investing in that country due to fear. Aliko Dangote, the richest man in Africa, also a Nigerian, has decided to move 60% of his investments to New York. 

The major reason is that insecurities lead to capital speculation (assuming the fall or devaluation of the currency) which forces capital flight. This in turn boosts New York’s economy instead of Nigeria’s.

Lastly, political leadership affects the value and strength of a currency. Before his death in 1852, Daniel Webster declared that “a disordered currency is one of the greatest political evils.”

 The government inadvertently controls the currency’s strength through its political decisions. When the baton of leadership is handed over to avaricious, self-centered charlatans, the currency’s value is sure to depreciate as hasty decisions such as borrowing will be taken just to swindle more money into their overstuffed bellies. In a reverse case, someone who cares about the people will endeavor to make well-crafted decisions that will benefit the country in a long run.

Briefly, the major effect of currency devaluation is the reduction in the purchasing power of money. As aforementioned through the example, the strength to buy major items in the market reduces because the value has reduced.

And as noted above, knowing the root causes of a problem makes it easy to proffer solutions.

The crux of this article is the solution to the canker called currency devaluation. Some solutions are import levies; quota systems. These two concepts have some similarities. 

 Import levies are fines set on certain products imported from foreign countries. It is a technique used by the government to checkmate the level of imports from countries and a way of protecting domestic industries by also gaining. 

The quota system is a different technique used to achieve the same goal, reduce importation. This is the process whereby limits to the amount of a particular product that can be imported, are set. This means a government can set the quota system for the importation of crude oil to be 2,000,000 (two million) barrels a year. This will greatly reduce spontaneous purchases of that product. These techniques aid in reducing importation, and when the demand for these products becomes pressing, domestic factories will have to step up to fill these empty shoes and satiate the demands which in turn boosts the economy and the value of the currency.

In tandem, demonetization of the currency is a solution. According to Investopedia, demonetization is the act of stripping a currency of its status as legal tender. It occurs whenever there is a change in national currency. The current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins. Sometimes, a country completely replaces old currency with new currency. 

Img: The new and the old Nigerian currency.

Although it's risky if not applied properly, demonetization goes a long way in strengthening a currency's value. When a country demonetizes, it aims at reducing inflation by turning the legal tender in circulation ineffective. This will eventually lead to a new batch of disseminated monies that will match the goods in circulation. 

It also reduces the rate of tax evasion leading to tax revenue. India decided to demonetize in 2016 and the effect was immediate based on the fact that it was largely dependent on cash. Eventually, it led to a 25% increase in tax returns due to the Income Declaration Scheme that went with it.

This Nigeria as an economy just tried to achieve but it is not the total solution.

          Equally, refurbishing refineries will go a long way in strengthening the currency. The bulk of the budget goes toward the importation of crude oil, if the oil refineries are refurbished and given into the hands of proper administration, these refineries will thrive and reduce the pressure on the government to import. Nigeria has five refineries, four of which aregovernment-ownedd: the Port Harcourt refinery; Warri refinery; Kaduna refinery; and the Niger Delta refinery. 

Nigeria is ranked 37th in the world for oil consumption and is said to be the only country in the Organisation of Petroleum Exporting Countries (OPEC) that imports over 90% of its petrol. The highest-producing refinery in Nigeria is the Warri refinery which produces 125,000 (one hundred and twenty-five thousand) barrels daily. Yet, Nigeria consumed 428,000 (four hundred and twenty-eight thousand) barrels daily as of 2016, meaning she consumes more presently.

          Furthermore, diversification of the economy is a feasible solution to the problem of devaluation. Diversification of the economy entails expansion into other sectors other than petroleum. Sectors such as the agricultural sector have a lot to offer if given half the attention the petroleum sector receives. These sectors will yield great returns which will aid in exports thereby strengthening the currency.

          Lastly, subsidies and loans should be provided to domestic infant industries. Infant industries are newly created industries that need the care to thrive and compete effectively in the market. When these infant industries – that  in different areas other than petroleum – are created, the government should be willing to grant them loans or subsidize certain materials for them specialize to grow geometrically and pull in returns to grow the economy and strengthen the naira. 

             In summary, the black market exchange rate for Naira and other currencies are 1 dollar to 737 naira, 1 Euro to 680 naira; 1 pound to 865 naira, and 1 Canadian dollar to 490 naira. 

This is from a country that was suspected to become a world power. It is almost impossible to return to the 1960s when everything was boisterous and booming.

       And from the aforementioned root causes of devaluation, the solutions had been proferred. Dyeing or rebranding a dying currency won't bring it back to life.

CONCLUSION

       This article's main goal was to give you awareness of all that is to be known about our currency devaluation, its root causes, and the solution to it.

It has also been discovered that even though demonization and rebranding of the naira notes is a step to correcting devaluation, it doesn't provide a lasting solution to correcting the bad state of both the currency and the economy as well.

But with conscientious efforts from the government and the citizens, a halt to the cascading currency (naira) can be made, and naira can be a proud currency when mentioned in the foreign exchange market and not tucked away like wraps of substandard confectioneries.

REFERENCES 

"Naira devaluation: its effect and possible solutions" - Anagun, Adeyemi Michael.

"Exchange rate archives" — Central Bank of Nigeria

"Vanguard Newspaper: FG’s decision to devalue Naira huge mistake"— Thompson by Gabriel Ewepu

AUTHOR:

Etinosa Egharevba 

MAROON INK