Every Nigerian at some point in time has questioned why the Central bank of Nigerian (CBN) can’t print more money to subsidies the financial difficulty in the country. Others have the knowledge that the Nigerian government can’t print more money but not the why. Let’s explain the reason why the central bank of Nigerian can’t print more money to make Nigeria rich while explaining which country can.
Brief explaining of the Central Bank of Nigeria
Central Bank of Nigeria has a Currency Operations Department within the CBN that is responsible for the printing of money. And also, The Nigeria Security Printing and Minting (NSPM) Plc print/mint the Naira notes while CBN Mint Inspectorate office within the NSPM Plc carries out quality control and receipt of finished Naira banknote. There are some factors to consider before printing more currencies in Nigeria such as inflation rate, buffer stock, and Gross Domestic Product (GDP).
High Inflation rate
Printing of more money lies with the federal government, if the government prints more money in order to become rich while avoiding borrowing/debts or paying off debts, there would be too much money chasing few goods which will worsen inflation. Also, it is better to have national debt than printing more money because money borrowed can be offset through taxes at the end of the period and the burden falls evenly on the economy rather than devaluing (inflation) the money on the global level.
The federal government of Nigeria influences the supply of money in circulation to avoid high inflation growth. Nigeria cannot be rich by printing more money because there are no economic activities to match the amount of money to be printed.
In addition, there is no restriction on the amount of money Nigeria can print through Nigeria Security Printing and Minting (NSPM) Plc, if every citizen has more money at their disposal that means there will be a continuous rise in prices of goods. At the moment (2020), Nigeria inflation is around 12% compared to a preferred band of 6-9% and susceptibility of domestic price levels to exchange rate, there would be a sharp rise in inflation if more money is printed, the existing inflation problem (no economic activities) will escalate resulting to hyperinflation.
For example, Venezuela tried to protect its citizen from hyperinflation by passing laws to keep a low price on essential goods which led to shops running out of stocks because more money was in circulation for low priced goods with inherent productivity issues in the economy.
Nigeria banknote which is Naira is not a universal currency; therefore, printing more naira would trigger the demand for dollars, which would make the international value of the naira to fall causing imported inflation to rise in Nigeria given that Nigeria is not a producing country but importing (consumption) country.
Presently, the United State of America (USA) is the only country that can print more money to get richer given that the USA is already a wealthy country because all the valuable resources around the globe such as oil and gold are valued in US dollars. Therefore, the USA can print more money in order to buy more things, although the price of those things in dollars will still go up if excess money is printed. In other words, poorer countries even Nigeria cannot print more money to become rich or clear off their national debts.
For instance, in 2008, Zimbabwe in Africa printed more money to make their economies grow, the prices rose to an outrageous amount which triggered hyperinflation. Additionally, the amount used in printing the banknotes would be worth more than the value of the banknote itself, the value of the money is determined by the forces of demand and supply not by printing more money but diversifying in the various sector to derive multiple incomes rather than single-income just as Nigeria depends on oil production alone.
Nigeria can print its own currency but not US dollars, even print a lot more while the prices of goods will go up and people will be forced to stop using the money rather prefer to be paid in the US dollar because Naira has forced the dollar to be in high demand.
Everybody needs money because of what money can purchase, the value of money would rise if money is a scarce commodity and the value of money will equally fall if more money is in circulation/printed. National debts don’t give birth to inflation but it goes on to show that printing more money will devalue the money whether saved or invested.
Therefore, Nigeria needs to learn from what happened in Zimbabwe in Africa and Venezuela in South America that printing more money is not a solution that will make it’s country rich or pay off national debts.