posted
The chairman of CBN, Professor Suludo plans to appreciate the Naira against the US dollar in 2008. The anticipated new exchange rate would be $1 to N1.25. Literally, your $1 will buy N1.25 in the foreign exhange market. If the new exchange rate comes into existence, your (N1,000)one thousand Naira becomes just (N10) ten Naira.
Okay, how will the consumers (demanders of goods and services) deal with the suppliers of goods and services? Okay, assume that Mr. X is a barber and charges N20 for a hair cut per person. Is Mr. X willing to accept the equivalent of the N20 with the new rate change, which is 20 kobo (N.20)? That is, by moving the decimal point two places to the left. Or is Mrs. X willing to sell her N1,000 worth of garri for N10? Again, eliminate two zeros by moving the decimal point two places to the left.
This writer is not against or for the new policy. My concern is how will the supply side of economics deal with it in a developing economy full of greedy folks? Let's hope that the market forces of demand and supply (the invisible hand) will play its role and drive price of goods and services down and keep inflation in check.
Posts: 288 | From: California | Registered: Jul 2003
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Look at it this way.... If the garri-selling lady (after having sold her previously N1,000 worth of garri for N10) can buy a cup of rice from another seller for N10 naira or thereabout, and if she can get a cup of garri from her suppliers for less than N10 then she will definitely accept the redenomination.
This is my take on it.
___________________ The Sun which rises from the East, shall ECLIPSE Nigeria (the spent asteroid) Posts: 92 | From: London | Registered: Mar 2006
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posted
Anyway, in the interim, the foreign exchange policy change, will cause artificial shortage of goods and services (like the garri in question) and drive up prices - causing inflation.
However, after a while, as more goods and services are produced, the forces of supply and demand will smooth things up until equilibrium price is attained. This equilibrim price is the price at which suppliers are willing and able to supply and consumers are willing and able to buy.
In the long-run, the economy will just be fine.
Posts: 288 | From: California | Registered: Jul 2003
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