People & Money

Why write at all about Nigeria?

The country is in a vicious time-loop. And this is its biggest problem.

Key questions are, “Why do Nigerians prefer cash?” “At what income levels is this preference most pronounced?” And “are there geographic variations in cash holding preferences?” These question work well, when the preference for cash is not driven by a need to conceal the illicit sources of money, or more commonly, to evade paying tax.

Maintaining a weekly newspaper column in Nigeria is a cruel and unusual chore. The place simply does not conduce to serious thinking. Nor the luxury of writing with much style or panache. From the length and breadth of stationary traffic in Lagos ― and the inexcusable conduct that this is both a consequence and cause of ― through the housekeeping nightmare that being responsible for a home has become, nothing in Nigeria makes thinking and its expression easy or desirable.

Also Read: Being too busy is killing your ability to think creatively

You could be forgiven for thinking that an environment this saddening is sufficient nutritive medium for those who are suitably reflective. At the very least, simply discussing these matters, especially thinking through how we may be rid of them, or how to kickstart the economy in a way that sustainably improves the general welfare, ought to exercise some of our best minds. If only. The country is in a vicious time-loop. And this is its biggest problem.

We have had the same set of difficulties since independence in 1960 ― an economy dependent on primary activity (whether it was cocoa, palm kernel, or groundnuts initially, or crude oil extraction subsequently), a preference for government responses that has two policy dissonances: the frittering away of scarce resources on pharaonic boondoggles; and the maintenance of a chokehold on the country’s most valuable resource (a creative and entrepreneurial people).

Since 1960, though, we have responded to this dynamic by government deciding on what it thinks is the right price and imposing this on the market. The Central Bank of Nigeria recently underscored the conceptual limits of this process.

Even if Albert Einstein did not say that “Insanity is doing the same thing over and over and expecting different results”, you can see how the idea of quantum insanity may be applicable to public policymaking in the country. The difficulty is that the idea is applicable to those who insist that there are alternative policy responses to the myriad problems that we face. This cohort has continued to espouse this different policy plank, even as they know that the country’s outcomes ― based on her default settings ― will not change.

Also Read: 2023 and Nigeria’s Abiding Question of Leadership

Why bother, then? Because the solution is as simple as it is obvious. The prices in a market, barring too many distortions, are the result of the many discrete decisions made by different buyers and sellers acting in their narrow interests. Like the process (and its results) or not, the price of a good or service determined by the market is an aggregate of buyers and sellers’ preferences. Understanding this, the savvy policymaker, tries to make sense of price signals ― soaring prices speak to supply constraints, for instance, or to an increase in demand not currently supported by improvements in domestic productivity. Falling prices travel in the opposite direction. At a minimum, then, the policy challenge is to free up impediments to supply responses across all domestic markets.

Since 1960, though, we have responded to this dynamic by government deciding on what it thinks is the right price and imposing this on the market. The Central Bank of Nigeria recently underscored the conceptual limits of this process. Ben Shalom Bernanke, a central banker who has reflected deeply on these matters and gone ahead to write extensively about them, insists that “Currency in circulation is determined by the public’s choices, not Fed policy. For example, when people withdraw cash from their checking accounts to do Christmas shopping, the amount of currency in circulation automatically rises.” In other words, there is no optimal amount for currency in circulation that a central bank may aim at. There are instead constraints in the commercial space that makes buyers prefer cash-based transactions.

… hey, what do you know; the pro-market side of our echo chambers has argued the case for evidence-based policymaking since 1960. To no avail. If nothing will come of that conversation, then, why am I bothering to write all of this?

Key questions are, “Why do Nigerians prefer cash?” “At what income levels is this preference most pronounced?” And “are there geographic variations in cash holding preferences?” These question work well, when the preference for cash is not driven by a need to conceal the illicit sources of money, or more commonly, to evade paying tax. Need I add that Ben Shalom Bernanke is a winner of the Nobel Memorial Prize in Economic Sciences? His take invites the monetary authority to fix the commercial constraints that drive a preference for cash in the retail space.

Also Read: What are our presidential candidates’ thoughts on the economy?

How to square this with the Central Bank of Nigeria’s preference for imposing a cap on cash in circulation? Indeed, cads could argue that at about 6% of gross domestic product, cash in circulation in the country today, fails any definition of “too much”. But, hey, what do you know; the pro-market side of our echo chambers has argued the case for evidence-based policymaking since 1960. To no avail. If nothing will come of that conversation, then, why am I bothering to write all of this?

That is the question that your columnist must address every week.

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