Print more Naira? Really?

The Governor of the Central Bank, Mr Lamido, recently announced plan to print more money if needed to help “save more ailing banks”. This echoes similar ideas that were proposed by certain members of the public during the now infamous naira crash early this year. Printing money is however always a bad idea. This is because printing money does nothing but increase the inflation rate and inflation is really really difficult to get under control. The number one role of the Central Bank is to ensure price stability which is typically defined as an inflation rate of around 2%. Its currently 11%. This idea of printing money combined with the recent big cut in the monetary policy rate is sure to raise inflation to new highs in the coming months. It might already be too late though. Studies have shown that inflation is largely determined by what people expect inflation to be, and with recent announcements by the CBN we are probably on our way there already.

Whereas I support the idea to seize and run the banks that were, according to reports, about to fail, this should not be at the cost of a higher inflation rate.Bank failures are indeed essential for the long run stability of financial markets as long they do not cause a bank run hence the insurance of deposits. I know the actual amount guaranteed by the NDIC is kind of ridiculous nowadays but that is a story for another day.

I guess in the end it borders on if we will prefer to loose money today or loose more money in the future.

Advertisements

4 thoughts on “Print more Naira? Really?

  1. The loans and mortgages should long ago take its toll as Ben and other strong-handed officials trying to delay its fall-out. Without the devaluation and foreclosure real estate properties in places, US residents and economic will suffer a longer and degrading financial smart-down

  2. true talk
    when it comes to ”9ja” issues..am not sure, if they think about many things at a time.. or not even think at all.Always at a tight corner..with some decisions that the consequences are still not all that…….that……uno..
    the whole thing is just wrong to me ……wrong…who really is doing the brain storming here?

  3. I know the US and UK did but they already had inflation of about 2%. Japan had a deflation for a few quarters prior to the crisis. Their economies are also robust enough to handle such problems. We really can’t say the same for us. Inflation, which is a bigger problem than bank failures, could so easily get out of control. Just ask the Argentinians.

  4. yeah, nonso…i share ur concern abt the inflation impact of the quantitative easing technique the cbn gov is embarking on. however, at this point in time, i feel that would be the economy’s only option. history has revealed to us that the other monetary policy measures taken (such as the the reduction in interest rates) would do quite a little in suppressing the lingering problem. if quantitative easing is managed in an orderly fashion, inflation could be checked. presently, the money being printed is meant for the ailing banks and not directly to other sectors of the economy. look at japan for instance, the country emerged out of recession last week, i understand that the government subsidized production directly by printing and pumping more money into the system (i stand to be corrected on that).
    I also share ur perception on the action of the cbn of kicking out the 5 bank MDs. This has xposed the incompetency of REGULATION in the financial system. these were banks that were declared safe n sound by the cbn a couple of months ago. i also do not understand the issue of EFCC arresting the bank executives n the debtors. there is a clear mechanism of recouping bad loans within the banking sector..the concept of a joint stock company (a corporation) is meant to limit the liabilities of the owners of a company. so, y go after the owners n not the company as an entity. What were the bank MDs arrested 4? has any case of fraud been leveled against them or jst 4 being incompetent in the running of the banks?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s