Critic of the current federal government of Nigeria, David Hundeyin has advised against redenominating the Naira by knocking off the zeroes in the exchange rate against the Dollar.
He gave the advice on his Twitter handle where he wrote:
“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.
“2 things.
“1.) 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 vs 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. 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. 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.
“(From consumption to production, anybody? If only a well-known Nigerian industrialist-cum-politician has been saying pretty much exactly this for years!)
“2.) 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.
“In fact, last year, the cedi was rated as the world’s worst performing currency. bloomberg.com/news/articles/ 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.
“There.
“This Ghana Refugee don talk him own.”
See Hundeyin’s post below:
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.
2 things.
1.) This is a continuation of Buhari's legendary economic… pic.twitter.com/HBFEHTvNMG
— David Hundeyin (@DavidHundeyin) August 21, 2023