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CBN reintroduces retail dutch auction as protests subside
The misalignment of the naira has been a persistent concern for an extended period, and policymakers face the challenge of establishing its fair value compared to the market value. One way of doing this is through an efficient price discovery mechanism, with options ranging from a retail Dutch auction, wholesale auction, and interbank system to allocation and rationing. The key aim is to ensure that those who need foreign exchange can obtain it at an effective price, which the retail Dutch auction system (RDAS) would enable due to its transparent approach.
The RDAS is expected to be a solution for efficient price discovery to reduce the misalignment of the naira from its fair value. This would help stabilize the naira, easing the cost-of-living crisis driven by the naira’s rapid depreciation and surging inflation. The cost-of-living crisis catalyzed the ongoing 10 days of protest in Nigeria, which began on August 1. While the intensity of the protest has subsided, over 30 lives have been lost, with an estimated N800bn worth of properties destroyed, in addition to an output loss exceeding N1.3trn.
High national debt-the double-edged sword
Opinions on the over-reliance of national debt as a source of financing development projects are sharply divided among economists. While Keynesians argue in favour of borrowing to finance capital and developmental projects, the Austrian school hold an opposing view due to concerns about resource misallocation and long-term sustainability. Today, the effects of rising debt levels vary widely. In Nigeria and Zambia, general government debt increased by 586% and 1056% respectively from 2014 to 2023, while per capita income fell by 48% ($1,688) and 20% ($3,223). Conversely, India saw a 193% rise in debt, and its per capita income increased by 60.3% to $2,500. Countries facing debt overhangs are now encouraged to pursue sovereign deleveraging, such as through sustainability debt swaps.
In this latest edition of FDC Prism, the Think Tank in-depthly analyzes these recent economic shifts, shedding light on what lies ahead for Nigeria in the coming weeks.
Enjoy your read!
