Till the dollar do us apart

The central bank balance sheet houses circulating liquidity as liability. Though the perception could prove to be very controversial, what has been of prime importance in the past five years is the ability to hedge loss while generating marginal return on assets value. The dollar the euro and the pounds have fundamental lag in their […]

The central bank balance sheet houses circulating liquidity as liability. Though the perception could prove to be very controversial, what has been of prime importance in the past five years is the ability to hedge loss while generating marginal return on assets value. The dollar the euro and the pounds have fundamental lag in their valuation. They are much evidence that the trio are still overvalued as other three major unquoted currencies are relatively undervalued. The mode of private banks managing assets such as Nigeria reserve leaves doubt if other forms of policy coverage could be extended. There are no international insurance covering loss in event of mishap and the banks has unlimited ability to generate profit from such reserve since only the exchange rate is held of greater account than future interest rate.  The fiscal balance by regional governments will be shifty until the valuation puzzle is solved in long negotiation and international trade agreement is enacted. Hence the global financial flow will be quite mythical but the hardship it unleashes will be more realistic than ever.
The temporary gain from news and noise in currency market will definitely face reversal when their fundamental emerge. In the euro zone and parts of Asia seasonal bubbles are controlled to the maximum and distributive hedging is used according to their central bank policy. Only few economists can really explain the sudden spike in the price of pounds and the euro despite bold steps by the U.S. treasury to keep the dollar in a stable condition. Since the dollar won’t stabilize in the short run from chaotic and fairly unpredictable international trade, smaller economies will still enjoy the previous status of dynamic equilibration for the lager economy. The total loss in the quoted currencies so far is not equal to the gain in the unquoted currencies and the difference can’t be explained by simple economics of currency exchange and short term speculation. China won’t keep buying American bonds forever and the euro zone will soon come out of its debt crises. The future is bright for Asia and Europe but the region naira is locked still hold the key to manifest of financial expectation. Nigeria has not come up with shock absorbing plan for international speculation. The rigid naira often gets broken in the hands of few international bankers. Instead of risking the dollar supremacy as currency of choice, they are many stable and smaller economies whose stability is indubitably consistent with any condition of global finance.
Why hasn’t Nigeria considered hedging with some of these currencies backed by large manufacturing base despite low yield of interest and stable exchange rate?  They are hidden flaws in the risk managing models and the central bank should acknowledge such before feeding people of bad news about the reserve been scrapped off in an act of god.
Economics seek to provide tools that could sharpen the predictive validity of international capital flow and the Nigeria as a slow adopter might be missing out in engaging such tools to enhance her standing.  No risk no reward but excess risk taking is akin to gambling and Nigeria will be worse off from an eventuality of more turbulence with the U.S. dollar.

Unekwu Onyilo <[email protected]>;