Banks should be weaned from surplus money - Bayo
A renowned economist, Henry Boyo in an interview with Sunday Trust, said Nigeria needs to stop excess liquidity from ruining its economy by stopping banks from benefiting from surplus money
How would you rate Nigeria’s reserves now as contributing to the sound management, or lack of it, of the Nigerian economy? In 1994/1996, the total reserves we had was supposed to be $4 billion. Then, in 1996, with $4 billion worth of reserves we were told that if we didn’t earn any more in the interim, the $4 billion reserves we had with the Central Bank would cover our import requirements for four months.
The exchange rate of the naira at that time was N80 to $1, with four months imports cover (Imports cover means that the amount of import you normally make over a period of time is estimated that almost every month or so you will spend one billion. If you have $4 billion, it means you have four months imports cover).
In 2010 or thereabouts, we did not have $4 billion; we actually had $60 billion of reserves and we were told this amount would give us 20 months, or even more, of imports cover. With this, our exchange rate was supposed to be less than N80 to a dollar. It should actually be N8 to $1 because we had excess dollars, which should have made our naira stronger than the dollar.
Whenever you have increasing dollars like we have now, from $4 billion to $40 billion, your central bank captures the dollar part of it, the dollars that you earn being 80 per cent of the revenue you collected. The Central Bank captures the dollars and creates
What we call foreign reserves is phony foreign reserves because
of the way it is accumulated. It is a destructive process, it is manipulated. It is money capture. How can you accept a situation that your CBN is getting richer while you are getting poorer? The
two must go hand in hand and not in opposite directions
what is considered the naira equivalent, so that the more naira the CBN gives to the public, the more dollars it is keeping. So the more dollars we earn, the higher the CBN reserves. But then, the higher the CBN reserves, the greater the problem of the excess
naira in the system.
Where did the excess naira emanate from?
The excess naira comes every time the CBN captures the dollar earnings of the country.
The reality is that the more dollar that the CBN accumulates, the more naira it pushes into the market into the hands of the beneficiaries. That naira it puts in the system is what creates the impact of surplus cash.
In 1975, 1976 and the 1980s, some people earned N1,000 a month and with that they were enjoying. If anybody wanted to buy a car, he would buy a new one. Then, a new Peugeot cost only N6,000.
The same CBN that says it wants the industrial sector to grow is the same one killing it, because in trying to cover the mess of the excess liquidity, it forces itself into the money market to remove what it called the excess of naira that it created.
In the process, it ensures that nobody can access the money and if they access it, they will fail in whatever enterprise they are engaged in because the cause of the paying back will be too much. There is a deliberate conspiracy to make sure that you will get poorer when you earn dollars.
What is responsible for the occasional decline in Nigeria’s foreign reserves, and how can it be averted?
What we call foreign reserves is phony foreign reserves because of the way it is accumulated. It is a destructive process, it is manipulated. It is money capture. How can you accept a situation that your CBN is getting richer while you are getting poorer? The two must go hand in hand and not in opposite directions.
The processes of accumulating those reserves are the processes killing our economy. What we have as a monetary policy framework is unsustainable because the process of accumulating the reserve is destructive.
In the process of creating the so-called reserves, you form so much naira into the system. In order for the CBN to accumulate the reserves, it has created the naira component. The more dollars the CBN has, the more the naira component on the ground in the hand of the banks, thereby creating problems of excess liquidity, high interest rate and weaker naira. Weaker naira means keeping the dollars that we earn and printing and putting plenty of naira in the system which the bank can leverage on to have their quantum of money.
It is very fundamental to understand that banks don’t print money although they make it available for you to spend. If a bank has N1 as its cash base, that is its cash reserve, and can keep, for example, a 10 per cent cash ratio. It means that if it has N1, it can lend out 9 additional naira to