How much of the value of a currency relates to actual and measurable economic factors and how much of that depends on how the market perceives it? The Naira’s free fall from 160 to over 500 to the US dollar reflected every one of those factors: The Economy is reportedly in a deep recession due to the fall in oil prices and the activities of Militants in the Niger Delta, so, like it has happened elsewhere, notably, in Russia and Venezuela, the local currency, plunged and probably has, hopefully, plumbed its depths having rebound from 520 to 400 to the USD, in the not so black, black market in the space of 1 week! Was that an economic turnaround? That would be the greatest miracle on earth. It was simply due to perception, which is a compounding of fears, anxieties, desperation and simple speculators’ greed. By simply granting more access to those who need the USD for the necessities of travel, school fees and medical treatment, the CBN, in one fell swoop, has eliminated most of the perceptual underpinning of the false exchange rate and the market promptly responded.
Most of the initial interventions were targeted at the sellers, who were then driven further underground making the USD even scarcer. Those tactics tended to create more fear and more anxiety and thus portended a run on the currency: The more the Naira fell the more it would still fall because it would no longer be a reliable store of wealth and consumers would be driven to a more stable currency, thereby instigating even more desperate demand in the face of scarcity, which in turn would further drive down the Naira’s value in a downward spiral; remember the Zimbabwean Dollar – ZWD250Trillion:US$1? Google and shiver. God forbid o!
One of the key functions of marketing is to shape consumer perceptions. Many governments fail woefully at positively shaping perceptions about the effects of their most well-intended policies and end up achieving grave unintended consequences. A well timed, mere hint, albeit a well-publicised one, at the CBN’s intention to grant a more direct access to consumers of the USD would have done half the trick even before it was followed by actions.
The marketing perspective and traditional customer orientation can’t do much wrong in politics and governance. People first above all else.
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