HOW WE CAN HEDGE THE FREE FALL OF THE NAIRA

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Managing the current monetary challenge will not be an easy one. I foresee that there is now a need for a cocktail of combined solution, just like you need a cocktail of drugs to treat an acute disease like AIDS, as the actions or inactions of government and the monetary authorities has degraded the economy so badly.
At the current rate of free fall, only a total collapse is coming. The Naira exchange at 320 tp1$ at the beginning of the month and has skyrocketed to 391 to 1$ at the time of writing. Something is wrong in the monetary regime.
Me thinks the following;

  • ·         Part of the problem is that CBN is trying to sell, manage and control a commodity it does not have control over. It is dancing in the wind. CBN does not produce dollars, it produces Naira. It should therefore focus on the Naira and leave the dollars alone.

  • ·         There MUST be a single FOREX market for Nigeria. No official market, no parallel market. Just a FOREX market, controlled by the market.

  • ·         Central Bank of Nigeria should stop selling dollars. In any case, it doesn’t produce any. If it wants to intervene in the market, it can, but just as a rebate to industry specific areas of interest. It will be like the country is interested in promoting the agro-processing sector of the market and anyone who is buying machines in that sector, who purchases his dollars in the single FOREX market, may get a credit note as a rebate from CBN which is a percentage of what he has bought.

  • ·         Anyone can buy or sell USD in this single market, but should be done through the established bank, making it possible to track where the flows are coming from.

  • ·         Through a natural process of flotation, the Naira will bounce around for a while and then stabilize at a value. It is value stability that is more important that just comparative absolute value.

  • ·         ON NO account MUST we have a fix value for the Naira against the USD, whatever cocktail of solution adopted, this one is a fail and double fail any day. This is what we have been doing since the country started and it hasn’t worked at all. That is why does kicking against devaluation have a point. We have been doing it and it hasn’t worked at all, even the governor they call “incurable illiterate” knows this one. It has never worked and it will NEVER work. Any attempt to fix the value of Naira will continue to be a scramble to look for more dollars to support that value. The Control of the Dollars is at the instance of the US government and the US Reserve Bank.

  • ·         Then off course we must aggressively begin to use the Naira to stimulate local production.

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