Why Nigeria should use Naira in oil trade

The Bretton Woods Conference was set up in 1944 to establish the rules for monetary and exchange rate management. The 1944 Bretton Woods Agreement solidified the dollar as the preeminent world reserve currency replacing the British Pound. The dollar was defined as 1/35th of an ounce of gold and convertible to all foreign banks at […]

The Bretton Woods Conference was set up in 1944 to establish the rules for monetary and exchange rate management. The 1944 Bretton Woods Agreement solidified the dollar as the preeminent world reserve currency replacing the British Pound. The dollar was defined as 1/35th of an ounce of gold and convertible to all foreign banks at that rate. The US printed more dollars than there was gold until the French in the late 1960’s demanded the US to pay one ounce of gold for every $35 they delivered to the US Treasury. Since he couldn’t pay enough gold for the dollars printed, President Nixon ended the gold standard completely in 1971 to avoid paying out the remaining 280 million ounces of gold.
A new system was then devised which allows the US to print USD with no restraints. The US then struck an agreement with Saudi Arabia in 1974 and later OPEC to price oil in US dollars exclusively. In return the US promised to protect the various oil rich kingdoms in the Persian Gulf against threats or overthrow of their Dictatorships. This created an artificial demand for the USD and made the dollar very unstable with the fluctuating price of oil. The USD nearly collapsed in the 1970’s as oil prices increased and gold skyrocketed to $800 an ounce. Interest rates of 21% were needed to rescue the dollar system. This reckless printing of the US dollar that continues till today is what former US Congressman and Presidential Candidate Ron Paul calls the end of the US dollar hegemony. The Central banks of today now accept the USD as if it were gold.
The US dollar now represents money without real value or turning paper to gold. Since the 80’s, the dollar has been devalued to gold by more than 50%. With a growing trade deficit, this has made the US more vulnerable to foreign countries as countries hold US dollars by selling oil and loan it back to America with interest to finance America’s excessive consumption and wars. However, countries have begun to reject the USD due to its devaluation. Any attack to the oil – USD relationship has been challenged.
Fractional banking or fractional lending is the ability to create money out of nothing, lend it to the government or someone else and charge interest on the money. This practice existed before the creation of banks. Goldsmiths would rent out their vaults to owners of gold and silver and issue certificates as receipts. The Goldsmiths noticed that the gold/silver in their vaults were rarely withdrawn so they saw an opportunity by issuing double receipts for their gold. The certificates later served as legal tender. So certificates were issued without the gold backing and borrowed out at interest. The banks continue creating money sometimes in a 10 to 1 ratio (debt to real money) thereby creating inflation then deflation by tightening the money supply.
Debt with interest is a vicious cycle – so as one borrows, one needs more loans. Once the money supply is tightened and citizens can’t access loans/debt, they file for bankruptcy and foreclosure. Then the banks buy up the cheap assets and start the process all over again. Most national currencies, like the USD are designed to lose value because they’re backed by debt. In order to pay back the debt with interest, countries have to print more of the currency and therefore diluting its purchasing power. People often confuse prices going up with inflation instead of the value of the currency going down.
Thomas Jefferson, the third President of the United States said, “If the American people ever allow private banks to control the issuance of their currencies, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their prosperity until their children will wake up homeless on the continent their fathers conquered.”
So what is the solution? Any currency that is not backed by a commodity of intrinsic value will be subject to excessive inflation and deflation and will eventually collapse. Accounts of Jesus driving money changers from the Temple are found in Matthew, Mark, Luke and John. There are at least 2 places mentioned in the Bible that forbids the charging of interest on loans. The prophet Muhammed gave the means of exchange over 1,400 years ago as “gold for gold, silver for silver, dates for dates, salt for salt, wheat for wheat and barley for barley.” The only commodities throughout history that have proven to be money are gold and silver.
Nigeria currently trades oil in USD instead of trading oil in Naira or a currency that has a gold/silver standard. As the dollar continues to devalue, the Naira follows. With the pool of economist that we have in Nigeria today, why aren’t any of them asking the obvious? What will happen to the Naira if there is a dollar collapse? Governor Sanusi has been one of the most outspoken Governors of the CBN that we’ve seen. His successor may not be as courageous and as forthright as him. Therefore, before his tenure ends, Governor Sanusi should please tell us – what is backing the Naira? Backing Naira with dollar is like putting something on nothing. A wise man once said that the more things change, the more they stay the same. And after all is said and done, more will be said than done.
Shomade can be reached at: [email protected]