So unusual is the latest intervention by the Central Bank of Nigeria (CBN) in the monetary policy space that it was bound to set tongues wagging. Last week, in a circular dated March 5, 2021, the CBN introduced its “Naira 4 Dollar Scheme”, in which it promised that through commercial banks, it will “pay to remittance recipients the incentive of N5 for every US$1 remitted by sender and collected by designated beneficiary”.
Our talking heads have ranged from the “Why?” of the scheme (consensus seems to be that the balance on the gross external reserves have breached the “reserve” mark) to the “What?” (a boondoggle with remarkable little chance of success, or an innovative contribution to monetary policy making). Some have been quicker with the arithmetic. Comparing the difference between the official exchange rate (US$410:N1) and the rate at the parallel market (US$475:N1), more numerate commentators have concluded that even with the N5 gained on every dollar, remittances to the country would yield less by flowing through official channels.
But surely, this is a tunnel-visioned reading of the intent of this policy. True, in recent times the CBN has dusted up its pitch for diaspora remittances. Ultimately, but for the inefficiencies in the market which account for the price differences at the different windows, the economy ought to be indifferent as to the route by which these funds reach the country. Far more important, is how big the remittance pot is. And here lies the appeal of the new initiative – an original effort to boost the inflow of remittances at a time when global economic conditions suggest a worsening of our external trade numbers.
Within this latter context, the CBN’s “Buy 1 Get 5 free” promo comes into its own. Over the last two decades, we have seen a plethora of domestic industries employ sales and marketing promotions to push their goods and services of the shopping aisles faster. Telecommunications companies seem to have been at the vanguard of this practice. But fast moving consumer goods businesses have also used it. Banks have resorted to this device to push up deposits. As regulator of the latter sector, the apex bank could not have failed to note the efficacy of the promo. So why should the central bank be excluded from use of this tool?
The fundamentals of personal home remittances differ from that of retail trade, I’m told. With consumer spending, promos encourage the front loading of expenditure. Thus, when a customer buys two months data subscription in order to get an extra month free, s/he not only brings forward next month’s spend, s/he also gets more value for that spend. Remittances, however, are a bit different. They come out of diaspora nationals’ earnings. And so may not be increased discretionarily. Except of course the remitting person were the beneficiary of a windfall – unlikely in our post-covid-19 world. Besides, because nearly always, remittances are tied to specific responsibilities which beneficiaries are expected to carry out (constructive of a place of residence, payment of school fees, healthcare bill, or stipends for the upkeep of family), they may not be increased as one would a savings account, by diverting funds away from current spending, or from savings pots abroad.
Unsurprisingly, the discussion around the CBN’s promo initiative touched on the yield on money market assets. In restructuring domestic incentives (for this is what the promo scheme aims to do) could the apex bank not have achieved more were domestic interest rates positive? But again, this reasoning is to be stuck in yesterday’s orthodoxy on economics. As the CBN has not failed to demonstrate at every opportunity it has had, the new economic heterodoxy that it has plighted its troth to is unashamed to borrow useful tools from anywhere.
Basically, then not to worry. Anyone who remembers how the banks used to sequence their promos, will understand why after this first, “Buy 1 Get 5 free” phase of the new management of the nation’s gross external reserves. This phase ends on May 8, 2021. Thereafter, next phase will involve leading remitters of dollars into the country winning CBN-branded T-shirts, face caps, and key chains. Phase 3, which will be designated the “Grande Finale”, will of course, have these lucky compatriots entered into a lottery that will have a Learjet as the first prize.
That way, we would have conducted ourselves in the monetary policy space as have others in different spheres of the economy in order that the outcomes that were available to those others become ours.
Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.