From Premium Times Nigeria · Ifeanyi Uddin · · 2m
Restoring the naira as a store of value
How Nigeria can regain naira trust without nationalizing dollar deposits.
In brief
How Nigeria can regain naira trust without nationalizing dollar deposits. Nigeria must lower inflation to 15% and stop government from using central bank for fiscal deficits to restore naira value. Originally reported by Premium Times Nigeria.
Nigeria’s monetary policy crisis
The central bank’s policy rate has not transmitted price signals for years despite inflation running riot.
Inflation at 30% year-on-year
Nigeria’s inflation rate was 30% year-on-year before dropping to 15% but still harming the naira’s value.
Naira’s purchasing power
N100 today has roughly the purchasing power of only ₦50 after five years.
Dollarisation in nigeria
Nigeria has partial dollarisation where locals use foreign currency alongside domestic currency.
CBN’s cash reserve requirement
The central bank requires 45% of deposit money banks to hold cash reserves with the central bank.
CBN’s policy rate failure
The policy rate has remained unchanged while inflation ran riot and the naira’s exchange rate fell.
Inflation target
The central bank must set a credible medium-term inflation target below 15% to restore naira value.
Fiscal deficits and central bank
The government uses the central bank as a piggy bank for financing fiscal deficits.
Solutions for naira restoration
Nigeria must reduce recurrent expenditure, broaden tax base, and publish complete fiscal accounts.
Naira’s exchange rate challenge
The economy must produce more tradable goods to support the naira’s exchange rate.
Naira as store of value
The naira must regain its value as a store of value through economic stability and low inflation.
Central bank independence
The central bank must operate independently from government fiscal demands to maintain credibility.
Inflation control
Nigeria needs to lower inflation to 15% to restore the naira’s purchasing power.
Fiscal reforms
The government must reduce recurrent expenditure and broaden the tax base to fund public services.
Naira’s future
The naira can work as a store of value only if the economy produces more tradable goods.
The big picture
Nigeria must lower inflation to 15% and stop government from using central bank for fiscal deficits to restore naira value.
