What has created the huge and more than a 60 percent gap between the official exchange rate and the parallel market exchange rate in Nigeria? Is the gap a compelling reason for Naira devaluation? I think that the gap is caused by untoward merchant behavior and a lack of investor confidence in the economy. In theory, the huge gap suggests that dollar demand has spilled over copiously from the official window into the street where the parallel market operates. Hopefully crude oil prices will not decline again soon to increase pressure from economic stakeholders for a perilous depreciation of the Naira. Now as I keep saying, weak Naira situation is not the fault of the Central bank of Nigeria because they have no direct governance over the production and exporting processes that lead to dollar receipts. However, sometimes, and surprisingly it appears the Central Bank of Nigeria thinks it is responsible for the nationâ€™s weak dollar receipts. It is not. The fiscal side has to stand up to this responsibility. I know in a developing country, helicopter money as a tool of unconventional monetary policy may be needed where the Central Bank provides money directly to the people, especially when lowering interest rates does not do the trick. However, even so, it must be made clear constantly by the Central Bank that this type of policy is unconventional and temporary and not normal practice. Helicopter money is similar to the so called quantitative easing but different. Quantitative easing (QE) is a monetary policy in which a central bank buys government bonds or other financial assets to stimulate the economy when lowering rates has failed to revive economic activity. The people want to know what is happening in the economy and especially how the fiscal and monetary authorities are managing the economy. It is the practice of the people to look to the government for blame. They have to and they should, after all they put the government in place to act on their behalf. So the government should never fail in connecting with the people as the most important stakeholders. If in Nigeria, we take a look at the on-going economic travails of Venezuela, a major oil producing country, we will see that the Central Bank of Nigeria and some of our other authorities are doing a fairly good job in managing the economy. And so to be comprehensively successful, the government will do well to always find creative ways to connect with the people in its monetary and fiscal policy decisions. I am Magnus Kpakol and that's my view.
Posted: Feb 9th, 2017 @ 04:13:01 AM