Notwithstanding government’s unusual reticence to our persistent recommendation for the adoption of dollar certificates for the monthly payments of distributable dollar-derived revenue, a regular reader of this column has suggested reasons why certain stakeholders would oppose the proposition to fundamentally alter the payment system, and thereby lift the irrepressible perennial burden of excess cash. Undoubtedly, systemic surplus cash induces such adverse collaterals as, inflation, high cost of funds, rising national debt, weaker exchange rate, rising unemployment, about N2000bn annual fuel subsidy and deepening poverty nationwide!
In his online rejoinder, a certain “Mr. Has” noted that “… the money deposit banks that should mobilize deposits for proper financial intermediation depend heavily on the monthly naira distribution to the tiers of government… for their operations. With dollar certificates, this source of funds will no more be available. The banks may experience some liquidity crisis. This probably explains why the banks exhibit lukewarm attitude to your proposals. Previous directives that the accounts of MDAs be held by the CBN were reversed owing to the banks’ agitation, as many of them exhibited inherent liquidity crisis! I believe the dollar certificates will have similar effect on the banks”.
For sake of clarity, excess liquidity is defined as cash held by a bank above the usual regulatory requirement for that bank.
Presently, Nigerian banks are required to hold a minimum of 12 per cent of their assets strictly as cash; consequently, cash availability above 12 per cent may encourage banks to indiscriminately, recklessly expand credit to customers, thereby unwittingly increasing money supply, and driving inflation, as so much money chase less goods!
Evidently, Nigerian banks become flush with excess liquidity every month, when hundreds of billions of naira are substituted for monthly distributable dollar revenue and paid into the bank accounts of the three tiers of government.
In response to the inflationary threat caused by the ensuing naira surplus, CBN would seek to withdraw and keep as redundant and idle, hundreds of billions of naira, which it borrows from the banks at between 10 and 17 per cent interest rate.
In place of such an obnoxious strategy, government proposed, some years back, that cash allocations to the three tiers of government should be domiciled directly with the CBN rather than commercial banks; in this manner, the burden of government paying outrageous charges for accumulating idle funds borrowed from the banks to restrain inflation will be averted.
Understandably, the banks rose up in concert to oppose this arrangement, which would have removed their veritable source of free meal tickets. Expectedly, banks preferred the comfort zone of playing custodian to government funds and also earning premium returns from the high-yield risk-free sovereign borrowings that regularly came their way. Unfortunately, with such supportive payments model, it made better commercial sense for banks to ignore lending to the more risk-prone real sector SMEs!
Consequently, the real sector eternally cries for credit, and gradually contracts, with adverse impacts on employment opportunities, while banks conversely continue to declare extraordinary profit results, in an otherwise retrogressive economy.
Regrettably, in spite of CBN’s constant generosity with humongous bailouts with public funds and the bonanza associated with endless excess liquidity in banks over the years, it is inexplicable that the Nigerian public have become traumatically pauperized. Nonetheless, the most impactful function of banks currently appears to be the facilitation of transactions rather than that of an engine room for inclusive national economic growth.
Alternatively, however, adoption of dollar certificates would avoid the pitfalls of excess liquidity and its ugly train of double-digit inflation, high cost of funds, with a weakening naira instigating increasing fuel subsidies above N2tn annually; such resultant enabling environment will regenerate industrial activities, and ultimately also restrain the plague of unemployment!
Furthermore, “Mr. Has” also observed online that “…the state governments that will be beneficiaries of the (proposed) dollar certificates require naira to meet their monthly recurrent expenditure, which range from 40 – 80 per cent. Why issue them with dollar certificates? Probably, that explains why the state governments are not enthusiastic about the dollar certificates”.
In practice, dollar certificates are not legal tender; consequently, beneficiaries would need to exchange them for naira at market-determined rates through the banks. Thus, in the absence of the usual stupendous cash increase with 100 per cent naira allocations, increasingly more dollars will consequently chase stable naira supply and alter market dynamics in favour of a stronger naira! Thus, in place of naira value coming under threat with bountiful dollar revenue, as before, the reverse will become a benign trend!
The presumed liquidity enjoyed by the three tiers of government from the current payment system has failed to positively induce real economic growth with improved social welfare. Nonetheless, government and MDAs’ bloated recurrent expenditure budgets have become cesspools of corruption, and accommodate all sorts of spurious expenses and allowances, including salaries for hundreds of thousands of ghost workers and other such duplications and leakages!
Conversely, the adoption of dollar certificates would certainly boost naira purchasing power, so that income earners would immediately find that their otherwise meagre wages and salaries will buy much more goods and services than previously possible. The resultant increase in consumer demand would create an array of opportunities for production expansion in existing ventures and similarly attract new investors who wish to target the exploding consumer demand.
Consequently, multiple job opportunities would become available to reduce unemployment and also absorb those ‘victims’ of efficient streamlining of public establishments in response to the MDAs’ adjusted liquidity positions. Ultimately, government coffers will also become beneficiaries of rising personal and corporate tax revenue.
Finally, “Mr. Has”, in his rejoinder, is concerned that a payments reform, as proposed, will create several beneficiaries of dollar certificates and this may in return result in multiplicity of exchange rates in the market. This may not necessarily be so; for example, in the absence of rogue consignments, the multiplicity of tomatoes sellers in a market does not generally engender a wide spread of prices; indeed, this is what a free market is all about; ultimately, an equilibrium price with minimal deviations will always evolve!
In reality, centralized price control promotes corruption and is generally also a precursor of market distortions and inefficiency, as currently evident with CBN’s monopoly of the foreign exchange market. This odious practice pampers the interest of the banks and the operators of a collaborative government structure, at the expense of over 90% of Nigerians, whose welfare and sense of dignity have become deflated by this oppressive payment model.
SAVE THE NAIRA, SAVE NIGERIANS!!
By Henry Boyo
