An investigative Nigerian journalist and founder of West Africa Week journal, Mr. David Hundeyin, has knocked President Bola Ahmed Tinubu over reports that he is about to embark on another move to redenominate the Naira, which he described as “a mistake and a fool’s errand.”
According to Mr. Hundeyin, the plan was to remove a few zeroes from the Naira as a solution for the declining value of the national currency and to stem the rising inflation.
Hundeyin said: “I read somewhere that the brilliant chaps in Abuja running the economy are considering redenomination (arbitrarily knocking off a few zeroes) as a solution for the Naira’s declining value and rising inflation.”
He, however, pointed out two reasons why removing a few zeroes from the Naira, not only is it not practical, but “is not a meaningful economic goal”.
He said: “This is a continuation of Buhari’s legendary economic illiteracy, where a government, for some reason, places an obsessive and neurotic focus on how much the naira exchanges for versus the dollar.
“For the umpteenth time, having a “N1 = $1” currency is NOT a meaningful economic goal, even if it were realistic – which it is not.
“1 USD buys about 950 naira. 1 USD buys 1,300 Korean won. 1 USD buys 145 Japanese yen. 1 USD buys 144 Kenyan shillings. None of these numbers tells you anything about the strength of those economies.”
See chart below:
Hundeyin continued: “On paper, the Naira is worth more than the won.
“Does that mean Nigeria has a better currency or a stronger economy than Korea? Does parity of the JPY and KES in terms of their dollar value mean that Kenya and Japan are economic equals?
“No. That would be a silly and illiterate conclusion to draw from looking at an exchange rate.
“A thousand and one things can affect an exchange rate, and it can mean a thousand and one different things.
“A cheaper Naira to lazy Nigerian politicians might be bad news because it means spending more to get their imported Patek Philippe watches and 12-year reserve whisky.
“A cheaper Won to productive South Korean industrialists, on the other hand, means more export sales since international buyers can now get more KRW and buy more Korean goods for the same dollar amount.
“Trying to build fiscal and economic policy around “revaluing” the Naira is a mistake and a fool’s errand.”
Hundeyin explained that what should bother Tinubu’s government’s is the long-term relative stability of the Naira, and not how many zeroes accompany it.
He said further: “The only part of the exchange rate that should be a government’s concern is its long-term relative stability.
“In other words, the exchange rate should be left to market forces and allowed to find its bottom – even if that bottom is N2000 = $1.
“As long as plans to significantly increase production and exports are being implemented correctly, any pain from a high exchange rate will be brief and temporary.”
The ace journalist recalled the campaign mantra of the Labour Party (LP) presidential candidate, Mr. Peter Gregory Obi, “from consumption to production”, and noted that “only a well-known Nigerian industrialist-cum-politician has been saying pretty much exactly this for years”.
Secondly, Hundeyin explained the futility of the Naira redenomination move, using the Ghanaian Cedi as a yardstick.
He said: “Ghana redenominated the Cedi in July 2007, knocking off 4 zeroes overnight to make 1 GHS = 1 USD.
“It’s been 16 years since then, and the Cedi now trades at around $1 = Ç11. That’s an over 1,500% loss in Cedi value since redenomination.
“Redenomination only made Cedi transactions more physically convenient – it did not solve the basic inflationary problem of the Cedi, which is the same as the basic economic problem of Ghana and sub-Saharan Africa in general – having consistently lower export incomes than import expenses, causing a permanent balance of trade deficit.”
He also cited a Bloomberg report which indicated as a matter of fact that last year, the cedi was rated as the world’s worst performing currency, despite the redenomination.
In conclusion, he said: “I know nobody sensible is listening, but I’ll still waste my breath and say it anyway: redenomination is not an economic solution, neither does it solve inflation.
“It is an aesthetic measure at best, and could actually worsen Naira instability at worst” he said. Read more.
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