With costs of metals where they are, and where our exchange rate is at, the honourable House of Representatives might just find that the most cost effective coin for the CBN to put out will be of the N200 denomination and above. Clearly, inflation has become an albatross around the country’s neck. It is unfortunate that no one seems to know what to do about it.
When the Bible describes man as having been created in God’s image, it must have had the Nigerian politician in mind. For the felicity with which this character tries to will order out of chaos is nothing, if not divine. With but one difference: Unlike Adam, the “downfall” out of which our politicos constantly seek to extricate themselves is entirely of their fashioning. This explains some of the problems with which the country does perennial battles. Immense, though, the challenges before the political class are, the national experience, till date, suggests that they may be blessed with far less nous than they are with magic.
Take the recent House of Representatives instruction to the Central Bank of Nigeria (CBN) requesting the monetary authority to reinforce the use of coins as legal tender. Nearly five years ago, the Senate similarly urged the central bank to punish commercial banks that refuse to accept coins from customers depositing money. The August house also demanded then that the central bank should convert smaller denomination currency notes into coins. Today, completely ignorant of any such previous effort, and indifferent to why such efforts may have failed in the past, the motion by Honourable Muda Umar, upheld by the House, believes that the use of coins could stabilise inflation.
It is election season, and high theatre is par for the political course. But there are very few good excuses for trying to reduce a car’s speed by reporting it in miles-per-hour, rather than in kilometres-per-hour. Nor do you address a currency’s exchange rate crisis by simply lopping zeroes off it. A much better use of scarce resources ― and one can only presume that our legislators’ time qualifies as such ― would be to try to understand why these outcomes present themselves and then persist. Rising domestic prices hurt pockets, especially by reducing disposable income. They have a secondary constraining effect on domestic output by forcing investors to put off new projects. Irrespective of the upshot from inflation, the poor and vulnerable suffer more. Because they do not have enough to begin with.
But the other thing inflation does is to move prices up so rapidly, that small currency denominations lose their usefulness. In this effect, it is not just coins that come off poorly. Quite a few Nigerians would have noticed that the N50 and N100 notes are close to facing extinction due to this process.
At the macroeconomic level, this imbalance results more often than not from government spending far more than the economy may usefully absorb. Or spending on unproductive activity. While the Buhari administration has checked both of these boxes, it is easy to forget that the Nigerian political class was not always this cack-handed.
So, what causes inflation? Definitely not the absence of coins. Nor for that matter, high levels of interest rates. Anyone who had a passing acquaintance with Olayiwola Adejare’s (PhD) O Level Economics of West Africa (in the 1970s) would still remember inflation as being the result of too much money chasing after few goods. At the macroeconomic level, this imbalance results more often than not from government spending far more than the economy may usefully absorb. Or spending on unproductive activity. While the Buhari administration has checked both of these boxes, it is easy to forget that the Nigerian political class was not always this cack-handed.
The design of the Central Bank of Nigeria Act 2007 was alive to this dynamic of inflation. And so, the Act sought to set up the central bank as a check on the possibility of the Federal Government spending too much (or inefficiently) by separating it from the fiscal policy making process. Not just did it grant the central bank administrative and functional independence (from the exchequer), it ensured that the tenure of its governor did not coincide with the four-year electoral cycle. It also tried to ensure that the central bank’s price stability remit was exercised through a policy committee qualified to take tough decisions and insulated, as was the governor from political caprice. To cap it all, it put a ceiling on how much of the Federal Government’s deficit the apex bank could finance in a given year: “the Bank may grant temporary advances to the federal government in respect of temporary deficiency of budget revenue at such rate of interest as the Bank may determine”, provided that “the total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the Federal Government”.
So, just in case a government were driven by political considerations to spend the nation out of pocket, the thinking of the framers of the Act was that we would at least have a central bank with the gumption and will to “take away the punch bowl just as the party gets going”, in the colourful phrase of William McChesney Martin ― a former chairman of the U.S. Federal Reserve System. With inflation where it has been, and the poor getting poorer by the day, and economically vulnerable segments of the populace more at risk, the operant question for those who would stanch the haemorrhaging economy should be: Which of the tripwires anticipated by the CBN Act 2007 have we set-off, and why?
With costs of metals where they are, and where our exchange rate is at, the honourable House of Representatives might just find that the most cost effective coin for the CBN to put out will be of the N200 denomination and above. Clearly, inflation has become an albatross around the country’s neck. It is unfortunate that no one seems to know what to do about it.
Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
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