The independence of a nation's Central Bank is sought as a way to minimize undue interference on monetary policies, actions and initiatives. Today, the line between the executive branch and its apex financial institution is becoming increasingly grey. In developing countries, it is unclear. The timely intervention of Nigeria's President Yar'Adua to stop Nigeria's Central Bank Governor's (Soludo) proposal on revaluing the Naira, is seen as a move to avert what could have created unintended consequences on Nigeria's fragile economy.

The Naira’s denomination/revaluation while an idea that may have some merit, is not suitable for Nigeria at this time. The current naira exchange rate of about N125 to $1 to jump to N1.25 to $1.00, by simply 'hacking off' zeros, is not a sound economic approach.

The CBN's nipped proposal would have meant that for every deposit of say N100,000, the depositor in essence would have been notified that the amount is now N1,000. This would have unduly penalized depositors, and created a rush to withdraw and redeposit once the policy comes into effect. Unbanked Nigerians, who keep their money under the mattress or in the attic, would have waited to see what direction to take. With the confusion, Nigerian banks would have been unable to handle the withdrawal requests which in turn, would create chaos. When there is a rush to withdraw due to panic, banks fail because they are not able to meet the primary 'deposit-on-demand' policy/clause.

To improve the Naira value, CBN should focus on certain key functions:

a. Reduce the interest rate it charges other banks on loans and money advanced to the banks. Such rates should float below 7 percent.

b. Identify certain key sectors of Nigeria’s economy such as local manufacturing, land use/real estate development, capital equipment sales and leasing, whereby interest rate loans to these industries and sectors must never be more than 2 percent above the prime rate that CBN charges banks. Loans in these sectors must be at a minimum for 20 years at fixed rate with a 10-year call.

c. Request via shared debt/equity placement on a graduated scale investment in major oil/gas exploration and development in Nigeria. By this policy, Nigeria must place at a minimum, 50 percent investment in every oil/gas exploration and gradually increase that placement to whereby the amount of any foreign investment in such sector over time should not be more than 25 percent.

d. Peg [lock-in] to a base year by equivalent subordination savings in Nigeria's NDIC (Nigeria Deposit Insurance Corporation) insured institution, never to be below the initial deposit. For instance, if a depositor in 2000 deposited N1m whose dollar equivalent is $12,000. In 2007, the depositor should be able to withdraw an amount that includes the value of the principal [at the base year value], plus all accrued interest. If the value of the savings keep eroding because at the time of withdrawal the value of the principal is not realized, the nation's savings rate is diminished and discouraged.

e. Budgetary policies should require that federal government as well as the states have balanced budget with compulsory and or mandatory 'Rainy Day Account' set at a certain percentage [floating] of its annual budget. As it is, the government operates on a 'deficit budgeting model', a sort of 'pay-as-you-go' scenario, whereby most expenses are funded as a 'Promise-to-Pay'. The uncontrolled manner whereby state governors with the state accountant generals' raise short term debts to finance certain expenses must be restricted and severely monitored. With a 'Rainy Day Account', states should be able to pay for certain goods and services without having to raise short term debts.

f. Eliminate advance payment and or mobilization fees for contracts. In the alternative, a contractor must meet the financial capability clause or go to a financial institution to finance the contract. The government should not finance contracts. Contract financing is a test of capacity, capability and performance. In other words, if a contractor cannot raise a performance bond to assure the state or federal government that the contract will be delivered, then the contractor must be deemed incapable. The attendant benefit of this is that sitting government officials that unduly award themselves contracts would now have to prove they are capable of performance.

g. Remove Advance Rent Payment. Long term obligations in the forms of level payments/annuities as represented by leases, mortgages and rents, create confidence on the present and future value of money. In Nigeria, the demand by landlords to collect up to 3-5 years in advance, creates undue pressure on the tenant sector of the leasing industry. Instead of requesting such advance payment, the first and last month rents should be made as deposits.

The stability of any currency is to ensure two main objectives: Create consumer confidence for locally produced goods and services and help a nation sell its export bound goods and services at a rate to earn foreign reserve. If the former is not achieved, the latter is hard to realize. The Naira should thus float along the world's major currencies at levels and rates commensurate to Nigeria's economy. When the monetary and fiscal policies that govern Naira's value are done as reasonable measures to meet the need of the average Nigerian, the Naira will assume its rightful place among its competitors with undue massaging and fixing.

Carefully crafted and monitored mechanisms that constantly check the measures against sound economic policies enable a currency to emerge as an indicator and legal tender for exchange of goods and services. Naira is on its way but not as proposed by Mr. Soludo.