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The Fall Out of Soludomics of Dollarization

First, it was the news that the Naira will be revalued. It was then followed by the news that the Federal Government was not informed and that they were caught off-guard by Soludo’s announcements - that he did not inform or consult the President before making the pronouncement. Then the news that the CBN did not have the authority to make such a move. Then the news that Soludo was conspicuosly left off the Economics Team for the nation. All led to the pronouncement by the Justice Minister that the Naira Revaluation Policy had been suspended indefinitely.

I wonder how the FG can justify leaving the CBN head out of the Economics team. Does that make sense to anyone? I believe that there is something fishy about this story. CBN Officials claim that the President was made aware of the move. I will be extremely surprised if he did he made such a pronouncement without the president’s approval. Maybe he stepped on some toes with such a move. If you think of it, it wont pay foreigners. So there is a high likelihood that some people making money from the foreign exchange trading are/were against the move and therefore acted to kill the policy.

If I were Soludo, the honorable thing will be to resign. He does not have anything to prove again to anyone and he is surely guaranteed of some plum job in the World Bank or at the IMF or one of these financial institutions. My fear is that some anti-progress forces will continue to act as obstacles of progress.

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New Naira Policy

The CBN head has announced a new Naira policy - the Naira will be redominized. The new plan essentially calls for the chopping off of 2 zeros from the currency. It is to go in to effect August 2008. The N100, N200, N500, and N1000 notes will be scrapped. N20 will now be the highest denomination. And the exchange rate will be adjusted so that N1.25 will now exchange for $1.
He explains that,

“According to him, they are designed to better anchor inflationary expectations, strengthen public confidence in the naira, make for easier conversion to other currencies, reverse tendency for currency substitution, eliminate lower value, reduce cost of production, among others.

Soludo said as necessary complements to the currency redenomination, the apex bank would embark on adoption of inflation targeting framework for the conduct of monetary policy and liberalised current account.”

I just hope that this is totally thought through before implemented. The debate over this new policy will be very interesting.

Here is a copy of Strategic Agenda for the Naira, the speech by Charles Soludo.

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