TINUBU: LET THE NAIRA BREATHE

 OLUSEGUN AYO-ADEBANJO  contends that the Naira is trapped in a vicious cycle of depreciation unrelated to real economic activity

The purported policy of your government is to leave all rates to market demand (i.e., pure demand and supply) so we get an actual operating rate for the Naira (against which the government can do jara moves on the side for “price stability”).

This objective, though seemingly reasonable, is doomed to fail because the way we implement it in Nigeria is flawed. We overissue Naira, so there is no way the Naira can win.

The current supposed auction by the CBN only produces a rate rigged against the Naira, fixed through the CBN’s opaque process.

This rate is manipulated by counting dollar receipts from oil revenues twice: first in Naira issuance not backed by productivity and distributed via FAAC, and again in dollars retained by the CBN for sales and reserves. This happens monthly. Add to this the excess Naira printed illegally via “Ways and Means” over the years, and the Naira is clearly disadvantaged.

Worse still, the government benefits from depreciating the Naira, as it allows more Naira to be issued against dollar receipts, helping to repay Naira debts and bonds. In other words, it’s a strategy to balance the government’s books.

Note: Most such bonds and overprinting fund white elephant projects or recurring expenditures. They don’t contribute to productive output to support the Naira’s value.

This problem is intensified by what I call “FAAC fever,” where, after each FAAC distribution, there’s a spike in dollar demand. Because the Naira no longer stores value well, state governments rush to convert their Naira into the same dollars CBN had earlier converted to Naira to disburse. They buy their own money back—at a higher rate.

This distortion means dollar receipts trigger artificial demand for dollars instead of Naira. Much of this stems from the government’s own excessive Naira printing for FAAC and abuse of Ways and Means. The Naira is trapped in a vicious cycle of depreciation unrelated to real economic activity.

It gets worse. At the next auction, CBN uses this phantom depressed rate of the Naira to set future rates.

All this discourages saving in Naira and denies the economy much-needed investment capital. One proxy for this is the $30 billion reportedly sitting in Nigerian domiciliary accounts. Yes, $30 billion. You can’t run a capitalist economy without understanding its foundation: aggregating and deploying capital. That means encouraging a savings culture and developing capital markets.

Adding to the problem are the very high interest rates on bonds designed to attract hot money to offset dislocations caused by past policies. This just postpones the inevitable: another Naira devaluation to repay domestic debts cheaply and preserve dollars for foreign debt.

This comes at the cost of everyday Nigerians, who suffer repeated inflation shocks. Those who survived past policy-driven hardships are hit again by more cost-push inflation and deeper impoverishment.

This sequence cannot result in a fair Naira value. It robs Nigerians of wealth and keeps them in poverty. It’s insane that this remains our national economic policy.

In sum, the number one thing government can do is restore faith in the Naira through four steps:

One, stop issuing Naira for FAAC dollar receipts. Instead, credit state and local government CBN accounts in dollars. Force them to buy Naira to meet their salary and other obligations. This increases demand for Naira and its value.

Allow states and local governments to use their dollar allocations to pay vendors needing forex for imported components—regulated through letters of credit. This curbs artificial dollar demand.

Two, impose harsh penalties for illegal Naira printing. The death penalty should apply to any CBN governor, mint director, or president authorizing unlawful Naira issuance. Only this can deter future abuse like the ₦30 trillion Ways and Means printing under Buhari, which remains unpunished. Without consequences, repetition is likely.

The Naira’s credibility must not rely on the character of whoever holds power. Harsh penalties empower CBN governors to resist pressure. Investors must be assured such abuse cannot recur.

No Nigerian government will maintain fiscal discipline if it can print money illegally without consequence.

Three, set strict limits and oversight for Naira issuance. Printing should reflect actual or expected production, with an inflation target of 2-4%. Anything higher suggests overprinting.

Four, Change CBN’s mandate from inflation-only to dual: inflation and full employment. Like the US Federal Reserve, this ensures that the CBN balances interest rate policies to both control inflation and support job creation.

Full employment is the best measure of the Naira’s real value. The CBN must ensure interest rates don’t stifle private sector lending and investment.

This also prevents excessive government borrowing from crowding out private capital.

Additionally, the roles of Coordinating Minister of the Economy and Finance Minister should be split. The former requires a developmental economist mindset, not a finance specialist. The job involves organizing the economy and citizens into a national production system that meets our needs and ensures full employment.

For this, we could justifiably print the required Naira without risking inflation and build the economy sustainably from the ground up. This role should follow Chinese-style macro planning, not Bretton Woods institution models.

This is the only path to stop the endless impoverishment of Nigerians. The government must act to create real value and protect the Naira.

 Ayo-Adebanjo is a venture capitalist with  B.A in Philosophy from the University of Ife, an L.L.B from the University of Buckingham, England and a JD from Columbia University, New York where he was a Harlan Fiske Stone Scholar and Articles Editor of the Columbia Business Law Review

He can be reached at: S.adebanjo2025@gmail.com