Autor: Damian Chidiebere Dike | Publicado: 2016-03-05T11:30:00-08:00

Economic Depression, Which way; Fiscal Policy or Monetary Policy.

When regional government came in 1954, Nigerians were empowered to open more banks. The unfortunate thing was that most of the banks went under not too long after they were established.
The reasons for their demise were;
Inadequate Capital
Fierce competition with the British Banks
Rapid expansion within a short period of operation
Incompetence and poor management
No legislation to regulate the banks 
However, in 1954 the Central bank of Nigeria was established as a corporate body to be a banker and financial adviser of the government and its mandate includes; 
The regulation of banking business in Nigeria; 
To ensure monetary and price stability
To maintain external reserves to safeguard the international value of the legal tender currency
To promote a sound financial system in Nigeria which are enshrined in Section 2 CBN Act 2007 Cap C4 Law of Federal Republic of Nigeria. 
After the independence in 1960, there was an upsurge in establishment of banks in Nigeria. During the oil boom in the 1970s, there were increase activities in Nigeria which led to establishment of more banks. And after the promulgation of Enterprise Promotion Decree (NEPD) in 1973, the Federal Government of Nigeria acquired 40% interest in the three largest banks namely; 
Standard Bank now First Bank 
Barclay Bank now Union Bank and
The United Bank for Africa now UBA
In 1977, the Federal Government increased the interest in these banks to 60%. The rationale behind that was to discourage those foreign banks to strive”
Today 2016, with the level of economic depression in Nigeria owing to the low priced of Crude Oil in Nigeria which had in recent years become the major source of the country’s revenue it has become imperative that the source of revenue for the country have to shift to the non-oil sector, but the major question is how do we solve the problem of inflation, the deteriorating economy and the hardship suffered by the people.
The fundamental issue should be, can the policy makers use the theory of short-run economic fluctuations developed by the various schools of thought. And using this will give rise to two questions.
Should monetary and fiscal policy take an active role in trying to stabilize the economy or should it be left to be resolve by the free Market?
Should policy makers be free to use their decisions in responding to changing economic conditions or should they be committed to follow the policy rule?

Economists use the term “Stabilization Policy” to mean policy actions aimed at reducing the severity of short-run economic fluctuations. Macroeconomic policy should aim at stabilizing the economy when it is overheated. But economist like Milton Friedman, born in 1932, to recently emigrated Jewish parents, whose theories of government deregulation provided the intellectual basis for the governments of Ronald Regan and Margret Thatcher in the UK, viewed the economy as usually stable. He blamed bad economic policies for the large and insufficient fluctuations we have sometimes experienced over the years, like this one of 2016 in Nigeria. He argued that economic policy makers should admit their limited activities and be satisfied if they did no harm. While the Economist John Maynard Keynes the son of eminent economist, John Neville Keynes, a lecturer in economics and Logic at Cambridge University, but was educated in Cambridge in Mathematics and Probability Theory, argued that there was potential instability in a capitalist economy which cannot be corrected by the Free Market Mechanism. Therefore there was need for government intervention through the use of Fiscal Policy to stimulate aggregate demand. Fiscal Policy refers to measures which are geared at the attainment of desired changes in the national economy through the key instruments of government revenue generated by means of taxation and expenditure programmes. Economists such as Mac Chaney and Martin viewed the economy as relatively unstable; therefore, policy makers should use monetary and fiscal policies to stabilize the economy. If this is not done, the end result will be unnecessary insufficient fluctuations in output, employment and inflation.
   
I was tempted to put up a publication three weeks ago to offer my opinion on the issue of the Nigerian Government fixing a rate for the exchange of the country’s currency. Initially, basing my argument on the rule of Demand and Supply, I was of the opinion that the regulation of the country’s currency should be left to be regulated by free market operation. But the problem with this principle would be that if eventually the circumstance was resolved in this way, it will take a longer time to achieve.
Three days after I decided not to write my publication, I listened to an interview on the radio news programme with one of those persons who do currency exchange at the roadsides, who the news broadcaster called the “DDC” or “DCC” if I am not mistaken. In the interview, the man that changes currency for people when asked why their exchange rate was increasing from N300 to N400 when the government had set the Nigerian Naira exchange rate at N190. The man claimed that the currency exchange rate was increasing as a result of people sending Dollars into Nigeria. He said that a person call to ask how much the Naira was to the Dollar and he told the person that the Naira rate to the Dollar was N400 to $1, and the person intending to send the money to Nigeria told him that he would not send because he heard that the Dollar had risen to N404. The man who changes money claimed that one week after their discussion, the Naira exchange rate increased to N404 to $1 so that customer can send the money he had wanted to send.
When I finished listening to this interview, I concluded that there was a kind of cabal going on there but I was consoled because of the principles in Prof. Milton Friedman’s school of thought on monetarism. He asserts that the increased supply of money in the economy leads to high inflation. Therefore, the supply of money in the economy needs to be tightly controlled. On the other hand, too little money in the economy will lead to high interest rates. This means that the consumers are tempted to save more and spend less. It then means that if there was any kind of link between the persons sending the money and the person receiving it so that they can gain N404 in the local currency, they cannot take that same Dollar to a bank and remit back to the sender at the rate of N190 and then bring it back into the country at the rate N404. I concluded that the banks will not change the Dollars for them at the rate N300 instead; it will be changed for nothing less than N410 which would be the street market value. And so, if the foreign currencies accumulate in their possession, infer from Friedman’s monetary principle, the values of the foreign currencies in the country will depreciate and so the value of the Naira will rise.
Few days after this interview, during a news broadcast, the public accused the DDC or DCC money exchange men that they were responsible for the devaluation of the Naira and few days after this accusation, the Naira rate reduced to N380 to a Dollar to calm the public, but it climbed higher again. 

The government in trying to help families who have children and relatives studying in schools in foreign countries, announced in the news on the radio that it has embarked on the data collection of Nigerians studying in foreign countries so that the government can help them remit money to their wards at the government regulated rate. And I decided to visit some banks to actually know if it is practical to bring in Dollar into the country, exchange it on the street to the Naira at a higher rate and send out that same money at a reduced rate and to bring it back at a higher rate. I actually visited three different banks with the story of remitting the equivalent of 1000 Dollars in the Nigerian local currency. The banks attendants smiled at me in a way to show that they cannot do that kind of transaction for me. But they advised me to send the money through my Dollar account. I was surprised because I thought the government had stopped that activity in the banks.I Damian Chidieber Dike is against dollar accounts because if what I think under Friedman’s school of thought under monetarism is practical, the dollar account will serve as;
A means of sending back at a lower rate that money that same money that came into the country on a higher rate.
It will help to devalue our currency more because people will prefer to carry around large sum of in smaller volume, which will be in the foreign currencies.
There is no place in the world where there is anything like a “Dollar Ac
count,” I stand to be corrected. It will only support money laundering. 

Reference
The Origin, Development and methodology of Economics, Prof. Augustus N. Gbosi
Lecture notes on Banking and Insurance Law from Barr. Emma Nwosu.