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Nairaland Forum / Nairaland / General / Business / Floating The Naira, What It Means. (295 Views)
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Floating The Naira, What It Means. by Wainey: 9:00am On Apr 20 |
Though alot of people are angry with Tinubu policy while others are happy with it. But how many of us have an idea what pegging and floating of currency means. Before I start let us look at countries that pegged their currencies and those that have floating currency. Pegged currencies 1.Barhain 2. Cuba 3. Belize 4. UAE etc free floating currency USA China Australia Canada Etc. Looking at these, you will know that the free floating currencies are big economies while the others are third world countries. Now most people are not happy with the naira to dollar exchange rate and wants the naira to go back to how it was before Tinubu came, but that is impossible in a free floating economy, because the CBN cannot fix the price anymore, infact, it makes no sense to look at the #/$ exchange rate anymore because our currency is no more fixed to the dollar but the market, in such a case, if the US economy gets a shock, it won't affect Nigeria anymore. Recently the US economy got a shock and inflation came, economies like Nigeria and Argentina that pegged their Naira and pesos to the USD got into hyper inflation and went into recession while the Chinese Yuan was growing stronger, it was a global inflation but Sweden, Japan and Chinese didn't feel it. That means if USA by some chance goes to recession, then Nigeria is doomed. China as a country had a fixed currency until 2005 when they partially floated their currency, 5years later, the Chinese currency was a household name in every African country and today they are among strongest economies. |
Re: Floating The Naira, What It Means. by Wainey: 9:00am On Apr 20 |
Now that you have known some difference, let's see the pros and cons of this policy. The Pros 1One thing is that the economy can never receive shock again that it received in the past few years, the market will now determine the price of naira and not any country, we were operating a system called "USA sneeze, Nigeria catch cold" 2Secondly, the economy is about to be one of the world leading economies. 3Thirdly Nigeria has more room for growth than any other country I know of. No joke, nothing is working in this country, the only sectors that are working are monopolized, the oil, the cement, the automobiles etc and investors will seize the opportunity, in simple economics i'd rather invest in USA than Nigeria if the USD determine the value of Naira so I don't lose my investment if USA goes to war, but that is no more the case. Imagine someone that is investing in mining that is largely untapped or electricity that is untapped, Nigeria is the new goldmine in town 4 Lastly pressure on CBN is reduced as they don't have to keep the naira fixed, these pros are not limited but I am tired Now let's go to the cons. |
Re: Floating The Naira, What It Means. by Wainey: 9:01am On Apr 20 |
There are few cons [1] free floating rates will make sense only if a nation has a sufficient internal mechanism to keep control over economic health and react accordingly. It will never work if central banks misuse their monetary policy. It usually happens in countries with soaring corruption, when a group of influential leaders misuses the monetary [policy in favor of their personal gains. This is when it is better to peg one nation’s currency to a stronger asset. [2] secondly With a pegged rate, you always know what to expect. Businesses can plan their import and export costs. A free floating exchange rate comes with increased volatility. Besides, the currency value can change every minute, it can go from 0 to 100 in a month, we saw that in the last two months when it went from 1800 to 980. |
Re: Floating The Naira, What It Means. by lomprico(m): 9:06am On Apr 20 |
Wainey: Before you float your currency certain things have to be in place first like a stable and growing economy. We like putting the cart before the horse in this country. |
Re: Floating The Naira, What It Means. by thesicilian: 9:16am On Apr 20 |
For those who don't understand, Nigeria is for the first time ever digging the foundations to becoming a truly independent economy. And this is not about politics, religion or tribe, try to see it from a neutral perspective. |
Re: Floating The Naira, What It Means. by Wainey: 9:17am On Apr 20 |
lomprico:actually that is impossible if we pegged the naira. Before Mexico floated her currency in 1993, it foreign reserves got depleted, it doesn't have a stable economy. Who even knows China before now, it was around 2007 that they started producing their China phones 1 Like |
Re: Floating The Naira, What It Means. by thesicilian: 9:18am On Apr 20 |
lomprico:If you wait for all conditions to be perfect, you may never get to do anything meaningful in life 1 Like |
Re: Floating The Naira, What It Means. by PointZerom: 9:19am On Apr 20 |
The first diagram is Tinubu and his government forcing the naira to obey the dollar. The second diagram is what the masses expected Tinubu and his government to do.
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Re: Floating The Naira, What It Means. by PointZerom: 9:23am On Apr 20 |
thesicilian: Nobody is asking the condition to be perfect as there's nothing like a perfect condition. What we are asking is for them to do the right things first. You don't demolish your house first before you start looking for where to relocate your family. 2 Likes |
Re: Floating The Naira, What It Means. by lomprico(m): 9:24am On Apr 20 |
thesicilian: It doesn't have to be perfect first, tinubu would have reversed the useless policies buhari created first, before doing it. 1 Like |
Re: Floating The Naira, What It Means. by Whalis: 9:25am On Apr 20 |
Whatever you have written may not make sense to a cobbler. My question is what was Naira status all through Obasanjo, Yaradua and Jonathan? Was it floating or pegged? Whatever it was let's maintain as it was with Obasanjo, Yaradua and Jonathan. You don't change what works for you. USA doesn't have an unstable economy. You can bank it it and whatever affects their economy will affect economies elsewhere pegged or floating. |
Re: Floating The Naira, What It Means. by Wainey: 9:30am On Apr 20 |
Whalis:well that is true, we can always maintain what they did but we will never grow to our potential, we will never be true Giants. The USA may be stable but China is coming and there are some likelyhood of wars in the future, if it affects the US economy, believe me you will wish we floated the naira |
Re: Floating The Naira, What It Means. by lomprico(m): 9:33am On Apr 20 |
Wainey: It's not impossible! So you think it's china phone production that made them the economic power they are today? Lol. Mexico's crisis was as a result of devaluing of the peso which affected most companies thus crashing the economy, yes they floated their peso but it only made things worse. They recovered by bailout fro USA. |
Re: Floating The Naira, What It Means. by Wainey: 9:37am On Apr 20 |
lomprico:The Chinese economy was not this strong, they were strong thanks to the market, that country has population the size of Africa. Nigeria is still strong thanks to it's market, if we divide, you will know that the country is not stronger than Ghana. With the level Nigeria is now, you can't put everything in place before you float the naira |
Re: Floating The Naira, What It Means. by thesicilian: 9:56am On Apr 20 |
PointZerom:Why would I want to demolish my family house? How many people have you seen who suddenly woke up and relocated the family to a hotel or another house in order to demolish the family house and rebuild it? It's a silly analogy because you're trying to sound intelligent. Despite all the strides the government is taking to correct the wrongs of the various administrations you guys are never satisfied. The easiest job in the world is being an armchair critic. Now tell me, what indices would you be expecting to see, what numbers, statistics, or parameters would you use as a yardstick, to know that now is the ideal time to make the necessary changes to save the nation from going completely under if you were the president? |
Re: Floating The Naira, What It Means. by PointZerom: 10:01am On Apr 20 |
thesicilian: A fraud that even you cannot tell the primary and secondary schools he attended cannot transform your economy. We told you this during Buhari. You left people like Osibanjo and went for a fraud. Screenshot this because after eight years you'll know better. |
Re: Floating The Naira, What It Means. by Wainey: 10:10am On Apr 20 |
PointZerom:Is ur problem Tinubu or the policies he makes, if your problem is that u unconditionally hate Tinubu then no need explaining to you, but if it's about the policies, then people can explain |
Re: Floating The Naira, What It Means. by thesicilian: 3:10pm On Apr 20 |
PointZerom:7 years more to wail is a long time bro. |
Re: Floating The Naira, What It Means. by PointZerom: 6:16pm On Apr 20 |
Re: Floating The Naira, What It Means. by thesicilian: 6:24pm On Apr 20 |
PointZerom:Tell me. |
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