Why CBN's monetary policy failing – Economist

Prof. Ken Ife, a development economist, says the Central Bank of Nigeria's monetary policy is not working because 80 percent of the nation's money is not in circulation.

Ife stated this during the 10th Convocation Lecture of Godfrey Okoye University, Enugu, on Friday, with the theme "Nigeria: The State of the Macro-Economy."

According to him, 40 percent of the nation's money is not banked, while 40 percent of citizens are living below the poverty line.

He said that this 80 percent money, amounting to N2.6 trillion, that ought to have come for the commercial banks to lend to the private sector to create jobs was not there, thereby strangulating the economy.

"They are denying the economy's capacity to create jobs, and we do not know how many of those are in circulation as technology has caught up with us."

"The design of the Naira should take five years or something, but for 20 years we have not done it," he said.

Ife, the ECOWAS Commission's Lead Consultant, stated that the amount of counterfeit currency in circulation could be greater than the amount of legitimate money, making it impossible for the CBN to know how much is in circulation.

The economist added that the activities of money launderers and ECOWAS policy had also made the Naira to be used in other countries without monitoring.

"All these have made the transmission of monetary policy in the country a challenge and forced commercial banks to lend at a higher rate."

"Money laundering, intense speculation on the value of the naira, frequent demands for ransom by kidnappers, and the naira serving as a second currency in the 15 ECOWAS countries are making it hard to maintain the quantities of our currency," said the expert.

Ife explained further that there were structural factors responsible for cost-push inflation in the country, such as a paucity of power, bad roads, water, rail transport, and rising costs, which were aggravated by a 300 percent rise in the price of diesel.

He said that 68 percent of manufacturers provide their own power 90 percent of the time, causing the prices of their goods to go up.

"The import dependency of our economy places us on the transmission belt of a global exogenous supply chain, which aggravates the inadequate supply of dollars."

"This will help narrow the spread between official and black market exchange rates," he noted.