Connect with us

Strictly Personal

Euro-Dollar Fluctuations: Is the Moroccan Dirham a Victim of Imported Inflation? By Hachimi Alaoui

Published

on

The global economy is witnessing an unprecedented motion in the value of the euro, as its exchange rate has reached levels not seen since the early years of its existence as Europe’s common currency. After a prolonged depreciation in the euro’s value, the euro/dollar exchange rate has almost reached parity.

It happened faster than expected, and the movement of the exchange rate between these two currencies has been non linear. The euro’s fall below parity against the dollar, however, merely reflects a widening gap in the interest rates between the two shores of the Atlantic. While the Federal Reserve has implemented aggressive interest rate hikes to curb inflation, the European Central Bank continues to opt for a more cautious monetary policy approach.

As a result, a significant interest rate difference between the Euro-Zone and the US, which has sparked larger capital inflows to the US and massive purchase of the dollars, as the dollar has become more attractive to investors.

The latest reforms are not enough

In a global context, however, let’s not forget that the Moroccan dirham is pegged to an anchor basket of these two currencies that reflect the relative weight of our trading partners. In 2015, Bank Al-Maghrib (BAM), Morocco’s central bank, and the Moroccan Ministry of Economy and Finance updated“ the Dirham’s basket weighting to reflect the current structure of foreign trade of our country.”

Under the updated basket, the Moroccan currency’s basket weighting is “set at 60% for the Euro and 40% for the US dollar,” notes the website of the finance ministry. But this range limits the ability of Bank Al-Maghrib to maintain the dirham around a predetermined central value.

The range has only been widened twice, in January 2018 and then in March 2020. In January, 2018, after years of a (+-) 0.3% range around the reference price, the dirham exchange rate began to evolve to a wider band of (+-)2.5%. The outbreak of the COVID-19 pandemic in March 2020 then prompted Moroccan monetary authorities to further widen the fluctuation range of the nominal effective exchange rate, thus increasing to (+-) 5% around a central value.

Despite this progressive process concerning the exchange rate’s flexibility, the fluctuations of the dirham bring out a basket effect that continues to dominate the liquidity effect of market drivers. The basket effect comes from the impact of the fluctuation of the euro/dollar exchange rate on the dirham, and the difference between this impact and the evolution of the reference price of the dirham is equal to the market effect.

While the dirham would appreciate against the dollar and depreciate relative to the euro when the euro/dollar exchange rate appreciates, it would depreciate against the dollar and appreciate against the euro, when the euro/dollar depreciates.

The Moroccan exchange rate regime thus allows the current appreciation of the dollar/euro to appreciate the dollar/dirham and depreciate the euro/dirham rates. Nevertheless, these fluctuating values of the dirham occur at the expense of Morocco’s foreign exchange reserves, which remain the primary buffer against external shocks.

Making the Dirham more resilient to external shocks

Given the dirham’s vulnerability to the relative values of the euro and dollar, switching Morocco’s monetary policy towards adopting a targeted inflation rate, announced by Bank Al-Maghrib, could lead to a stronger market effect. Such a monetary policy framework can be implemented with a floating, or at least, a more flexible, exchange rate.

However, this transition would amplify the exchange passthrough to inflation, defined as the degree to which Morocco’s domestic prices react to a fluctuating value of the dirham, and induce persistent supply shocks, namely cost-push shocks. Nevertheless, more market discipline would follow and the exchange rate, rather than international reserves, would serve as the main shock buffer.

The redesign of Morocco’s monetary policy framework becomes even more critical in the face of the increase of oil prices. Morocco has long benefited from a negative correlation between oil prices and the US Dollar. The resulting compensatory effect made it possible to mitigate, albeit partially, the increase in the energy bill paid in dollars.

But this compensatory effect has faded in recent months due to the  rise in the value of the dollar against the dirham, combined with a staggering increase in the cost of energy inputs. Taken together, these two outcomes have amplified the inflationary pressures that households are experiencing, negatively affecting the Moroccan economy.

Under such conditions, Bank Al-Maghrib will need to provide more support to the dirham at the detriment of foreign exchange reserves. However, current fixed-exchange rate behavior fails to support the Moroccan economy. By strengthening the foreign value of the Moroccan currency, the country maintains the same level of inefficient domestic absorption, which in turn leads to supporting harmful consumption of energy and the bad habit of using imported goods.

Moroccan households currently face a volatile exchange rate and energy shocks. And rather than consuming our foreign reserves to maintain the same rate of energy utilization, an awareness of our consumption habits is probably more suitable. The fact is that pegging the dirham requires selling central bank’s reserves whenever there is an exchange rate pressure that generates costs associated with the continued use of foreign reserves as an external shocks absorber.

On the whole, the support that Bank Al-Maghrib provides to the dirham helps maintain relatively high levels of an unfavorable and unproductive use of energy and raw materials. If these imported inputs are expensive and hinder economic growth, Moroccans need to be informed.

Greater flexibility of the dirham and the resulting depreciation of its exchange rate would reduce domestic energy consumption, whereas a fixed exchange rate simply fails to readjust our consumption habits.

 

 

Strictly Personal

Akeredolu And Katsina’s AK-47 Trainees by Lasisi Olagunju

Published

on

In Lawuyi Ogunniran’s Yoruba play, Ààrẹ-àgò Aríkúyẹrí, we see how a happy polygamous family is ruined by the indiscretion of the family head. Ògúnrìndé Ajé, the Ààrẹ-àgò Balógun of Ibadan, a man with three wives, throws a party to worship his ‘ori’; he lines up his wives in a singing and dancing bout; the second wife outshines the others; the husband celebrates her, publicly proclaims her as his favourite and shoves aside the other wives. The party is over, three children of the third wife die in quick succession – poisoned; hell is let loose. The first wife secretly tells the mother of the dead children that her Babalawo has revealed the favoured wife as the ‘witch’ who ate her children. The bereaved tells her husband the discovery, and, the man, in anger, shoots dead the ‘accused’ wife; the town steps in. Ààrẹ-àgò Balógun is accused of murder and brought before Baṣọ̀run Ògúnmọ́lá and the council of chiefs. The truth is revealed: the first wife is the culprit; she tells the chiefs that the wives loved one another before their husband picked his favourite in public. She confesses to killing the kids to punish the family head “who knows the slender wife that fits her husband on the day of the feast, and (knows) the fat wife fit only as a labourer on the farm.”

Nigeria is ineluctably rolling towards its destiny; it is approaching its final destination. That was the summary of my thought after watching the Katsina vigilante training video, the trainees’ open display of dexterity in handling AK-47 rifles, and Governor Rotimi Akeredolu’s charge at the double standards of the Federal Government. The governor alleged that South-West states applied for and got a no for its Amotekun from the Federal Government while Katsina State got a yes for its security outfit to bear military-grade weapons. The firm became firmer after I read the police’s explanation that what the Katsina vigilante boys got were not AK-47 assault rifles but mere training in the use of AK-47 guns. We live in a ghostly society ruled by funny, deadly ideas.

You saw the devastating effects of bias and favouritism in the Ààrẹ-àgò Balógun story above: Three children die of poison; one wife is shot dead by the husband; a jealous wife is sentenced to death; the family head is sentenced to death – but escapes to the miserable life of a fugitive. Even, members of the jury – the chiefs who sit on the case – become victims; they are busted as bribe takers and lost their privileges, and the bribe deliverers are sold to slavery. The lone survivor is the last wife who escaped with the morbid scar of the loss of three children. This story is Nigeria and its future in their very raw form. Clinical psychologists have a description of a household of bias and iniquity. They say a family of parental favouritism is one of shame, fear, and fight. Wherever you have the blight of bias, you see cohesion in flight; you feel disengagement and conflict in full swing. A home where the favoured child sees the parents as enviable and helpful, and the disfavoured child perceives them as wicked, selfish, and authoritarian is no one’s dream home. It cannot ever achieve its full potential. It is a house of commotion and destruction.

Human existence, Sigmund Freud theorized, is all about two basic urges – he called them drives: One is Eros (the desire to live); the other is Thanatos (the wish to die). Both cohere and contend throughout the journey of life. If Freud saw war as “the prevailing of death over love,” then Nigeria is the ground of that battle. Every step that is taken here, solitary and collective, is a shortcut to death and decay. Nothing is an accident; the virus ravaging our giant came with its bad birth and breath and feeds on the deformity. Imagine what the Nigerian government has made of a decision as basic as what weapons to deploy in fighting a collective enemy. The regime has costumed it in sectional arrogance, governmental infidelity, and unfaithfulness. The result is the outcry from Akeredolu and the shameful silence from Abuja.

Except the state armourer is the forest bandit, he should have no problem arming law enforcement agents and agencies against banditry. If terrorists in the forests of Katsina and Borno use AK-47, and terrorists in the forests of Ondo and Oyo use AK-47, shouldn’t the respective responses be similar in ways and means? We insist that our country’s full name is the Federal Republic of Nigeria, yet, we hate what real federations do. The United States is a federation with more than 17,000 state and local police forces. They are many and, yet, they get the job done in an atmosphere of cooperation and mutual respect. Why is it difficult for us to do what others do so that we get what others get? We cannot insist that Nigeria’s unity and oneness are inviolable and non-negotiable while having one standard for the north and a different standard for the south.

Our founding fathers fought for and got Nigeria as a federation of disparate units. They voted for federalism because they knew it would stop the madness of one part from becoming a national epidemic. It is about balancing of power – and even of terror. America’s founding fathers opted for federalism because they sought “to balance order with liberty…avoid tyranny, allow more participation in politics and use the states as ‘laboratories’ for new ideas and programmes.” The fourth president of the United States and father of the country’s constitution and its Bill of Rights, James Madison, argued (in The Federalist, No. 51) that power must be set against power, and ambition must be made to counteract ambition if his emerging nation of many parts would progress in peace and plenty. Earlier in The Federalist, No. 10, he had explained how the adoption of federalism would engender peace and development: “The influence of factious leaders may kindle a flame within their particular states, but will be unable to spread a general conflagration through the other states. A religious sect may degenerate into a political faction in a part of the confederacy, but the variety of sects dispersed over the entire face of it must secure the national councils against any danger from that source.” Drawing from Madison’s argument, an analyst says “federalism prevents a person that takes control of a state from easily taking control of the federal government as well.” What do those sentences tell you about Nigeria and its owners and why the nation’s ailments are incurable? The US experience apparently influenced what legal icon and elder statesman, Chief Afe Babalola, SAN, argued for in April 2022. He called for a total constitutional overhaul of Nigeria instead of limping towards the next elections. We asked him to shut up.

Five months ago, Chief Afe Babalola looked at Nigeria he was living in and cried out that he could not recognize what he was seeing. Then he issued a statement and said he “decided to talk because this country is now different from the one I used to know.” He said he saw a gradually collapsing country, a half-dead nation with a currency that was N199 to $1 in 2015 but which had gone down to N570 to a dollar as of the time he issued the statement. “The external debt, which was $10.7 billion in 2015 is now over $38 billion. The government is borrowing more, and spending more, but earning fewer revenues. The worse thing is that the debt servicing level is also rising. In 2020, Nigeria was ranked as the poorest country in the world with over 50 percent of Nigerians living in extreme poverty while over 70 million Nigerians are in urgent need of life-saving assistance.” Chief Babalola said he was “of the firm conviction that moneybags now control the lever of powers.” He said if we allowed the present constitution beyond 2023, what we would be getting is recycled leadership, who would continue the old ways. “We need a constitution that will throw up young, brilliant, dedicated people to save this country. We can’t get all these under the present constitution. We need a new set of leaders in our nation; leaders who will not see themselves as Mr. Know-All and who will not see themselves as above anyone,” he said.

That was five months ago. How many bags of naira must you carry before you can purchase a dollar in Nigeria today? A thousand dollars may soon trump a million naira. If you are an optimist, you have something to chew on here. It is said that a witch who would stop being a witch would not build an all-female nest. Nigeria is that witch. It breaks the backbone of whatever is good and strong; it does not build or rebuild; it listens not to the voice of knowledge and understanding. How did we take Afe Babalola’s counsel that we rearrange our lives productively instead of going for the poisonous feast of the 2023 elections? We dismissed him and his words. The old man has since been minding his business, eating his pounded yam, mounting his horse during the day and ‘the other one at night. But for Nigeria, denial cures nothing; the country remains “a contagion of disgrace.”

Bloomberg, last week, in a damning report said bankers were bailing out of Nigeria’s stagnating economy. It mentioned ‘japa’ the new fad for brain drain. The drain is with the traumatized – made up of everyone: young, old, read, and unread. It is the result you get from a cracked system that won’t submit itself for reconstruction. Nigeria cannot work unless it has the right leaders. It cannot have the right leaders unless the structure is right. The tormentors of Nigeria run to the United States. But they won’t accept that that country works because it preserves the choices its founding fathers made at the beginning of their journey. Nigeria robs the world of hope and puts the optimist to shame. “The fountains are dusty in the Graveyard of Dreams; The hinges are rusty and swing with tiny screams” (H. Beam Piper in ‘Graveyard of Dreams’). We tempt fate and tamper with destinies; the result is the shrill death of hope. Fuji music’s grand old megastar, Kollington Ayinla, sang in the 1980s that Nigeria is the world and it would never die (Nigeria, ayé ni kò lè kú…). My starry-eyed generation (and the ones before us) sang and danced with Baba Alatika along the rich creeks of that optimism. But, life has taught us lessons on how not to be optimistic. If musicians are true poets, today, I would borrow from Odia Ofeimun and chant ‘The Poet Lied.’ I am not sure the lyricist in Kollington believes any longer in the spirit of his song of an eternal Nigeria. Nothing that is born to sink will swim – even when it is offered lifelines.

 

Continue Reading

Strictly Personal

Let us all grow bananas, make more pads, distil more Waragi by Jenerali Uliwengu

Published

on

We are now getting used to Kenyans chalking up achievements in areas where all of us should have been eager to prove our worth in. And it looks like there is neither atomic science nor black magic in what they beat us in. All they have needed is a little thinking space in which to exercise their minds, and, surely, that should be available.

This time round, I learn that a couple of Kenyan students, Paul Ntikoisa and Ivy Etemesi in the Rift Valley, have been putting their heads together around a problem that has been dogging young female learners in all our countries; some female students sometimes drop out of the school system because of the biological imperative of having to go through the menstrual cycles in an unfriendly environment.

Though we all know that this is a natural imposition of womanhood that no girl — unless seriously disabled — can avoid, we seem to think of it as a girl’s problem that she and her mother – not father — should deal with.

Modern education

It has been with us for a long time, and we have knowledge of the impediment it places on the path to women’s emancipation which should come through attaining modern education, and yet we do little to alleviate the inconvenience experienced by school girls. It has often been stated that many girls cannot stand the discomfort and humiliation they have to go through when the inevitable happens, every month because they are shunned and mocked by their uncomprehending male colleagues who treat them as if they were unclean, though it is obviously through no fault of theirs.

It is estimated by Unesco that to more than 2.6 million girls are faced with this problem in Kenya alone, and it is easy to imagine how many more will be affected across the continent.

Now, some Kenyan youth have come up with a brilliant idea that will radically change the way we look at the banana plant. Taking a cue from the traditional use of the banana stem by Ugandan women, these young Kenyan students went one better, by obtaining banana trunk fibre and processing it into wearable fibre that can be deployed as a sanitary pad.

Immediately, I heard of this big news I rushed to google it, and spent some time buried in the literature. Till I understood the processes. I am not a techy buff myself but I could kind of understand what they had done with the banana stem: take out the soft inner flesh of the stem, and wash it thoroughly to remove impurities…

Well, I must stop there lest I give misleading information to DIY enthusiasts, but my point is made.

What these young people have done is a practical demonstration of the can-do spirit with which many youngsters are imbued, and they are to be found not only in Kenya but in all our countries.

It is only that the Kenyans tend to get there before the others and get all the bragging rights. If I sound envious, it is because I am.

But better late than never, and all our youngsters in the other countries can take up the challenge.

Other tissue

First, we have the advantage of knowing what the Kenyan lads have done with the banana plant. That is not the only way to go, because someone could try to utilise some other tissue. I wonder how baobab bark would fare in this context, since ‘orubugu’ is hallowed textile in the Lake Victoria area and could do the trick if it is properly pounded and softened. What about papaya stem?

On a general note, we need to encourage our youth to be more adventurous, to experiment with what has never been used but is plentiful.

A long time ago I got some wisdom from a visiting young French man who told me, unforgettably: to make progress, you either identify something useful and acquire plenty of it, or you identify something that you have plenty of and find a use for it because you already have it. It is the case of banana plants all around us.

This might create a banana revolution in which people will uproot other plants to replace them with bananas, and find that the bananas have numerous advantages:

They can be eaten as fruit when they ripen; they can be cooked before they ripen to provide matooke and katoogo; the banana juice is sweeter than Coca Cola; fermented, it gives the alcoholic beverages, rubisi and mbege, from which a moonshine is extracted for serious Waragi and Konyagi gins consumers.

In addition, banana plants in large numbers help to decorate the land, cool the earth, and freshen the air.

Rainfall pattern

I see no reason why people all over East Africa do not plant as many bananas as they can in all the areas with a moderate rainfall pattern. DR Congo, which enjoys such plentiful rains, should take the lead in creating this luxuriant and extremely valuable agricultural belt.

We could all soon celebrate the banana plant as a liberator on so many fronts, and since some people have been trying very hard to make banana republics of our countries, we might as well complete the picture meaningfully.

Jenerali Ulimwengu is now on YouTube via jeneralionline tv. E-mail: jenerali@gmail.com

Continue Reading

EDITOR’S PICK

Culture46 mins ago

Kenya prohibits LGBTQ+ movies from streaming platforms

The Kenya Film Classification Board (KFCB) has banned movies containing LGBTQ+ (lesbian, gay, bisexual, transgender, queer) contents from streaming platforms...

Metro57 mins ago

Despite denials, new satellite images reveal Eritrea Army build-up near Tigray

Despite Eritrea denying that its army is not involved in launching assaults on Ethiopia’s northern Tigray region, new satellite images...

Politics1 hour ago

Nigeria Decides: Ruling party candidate, Bola Tinubu, missing as political parties sign peace pact

As the 2023 presidential elections draw closer in Nigeria, leading candidates have signed an accord toward a peaceful electioneering process....

Metro3 hours ago

Finally, trial of Rwanda Genocide alleged mastermind, Félicien Kabuga, resumes at UN tribunal

The trial of one of the alleged masterminds and financiers of the 1994 Rwandan genocide, Félicien Kabuga has gone has...

Metro21 hours ago

Two Nigerian fraudsters arrested in South Africa over romance, Bitcoin scams

Two Nigerians suspected of defrauding South African women over romance and Bitcoin scams have been arrested by a combination of...

Metro23 hours ago

Again, United Nations raises the alarm, says 200,000 face starvation as drought ravages Somalia

The United Nations has, again, raised the alarm over impending starvation in Somalia with an estimated 200,000 people on the...

Metro23 hours ago

Ex-Guinea military dictator, Moussa Camara, to face trial over 2009 stadium massacre

Former Guinean military dictator, Moussa Dadis Camara, alongside 10 other top officials of his government, are to face trial for...

Metro23 hours ago

Kenya tightens up borders with Uganda over Ebola outbreak

Kenya has tightened up measures of fighting the endemic Ebola virus amidst the recent outbreak of the disease in neigbouring...

Metro1 day ago

Congo DR declares end to current Ebola virus wave

While Uganda is currently battling the Ebola virus epidemic, its East African neighbour, the Democratic Republic of Congo has declared...

VenturesNow1 day ago

Niger Republic to stop oil exportation to Mali if…

Diplomatic issues surrounding the West African country, Mali, are yet to be over as one of its neighbours, Niger has...

Trending