Dollarization of an economy would be said to have occurred when the inhabitants of a country use foreign currencies in parallels to or instead of the domestic currency as a store of value, unit of account and medium of exchange within the. This is exactly what is happening in the country in a rather large scale.

The recent move by the House of Representative to ban the usage of dollar has been commended by experts as the preference of the U.S dollar and other foreign currencies by the elite and aristocrats to the naira, which is the legal tender leaves so much not to be desired. The unrestricted and overbearing demand of the U.S dollar by politicians and the business class is exerting a lot of pressures and having an adverse effect on the purchasing power.

According to a sub-Saharan Africa’s Economist at Renaissance Capital Yvonne Mhango, dollarisation of the economy can be blamed on the perennial weakness suffered by the naira on Nigeria’s heavy import dependence. She explained why the exchange rate is often the bellwether of Nigeria’s economic health and why there is a swift pass-through of exchange rate movements to inflation. About a third of Nigeria’s forex outflows are due to invisibles which refer to services. These include international payments for services as well as movement of money for which there is no extra transaction such as transfer payments.

In Nigeria today, many residents store their value in dollars, liquid assets are also moved freely around with dollars as preferred currency. This has however prompted the Central Bank of Nigeria (CBN) to place an embargo on importation of foreign currencies into the country to stem dollarization of the economy except with approval. Still, despite this effort and action, the use of the dollar has become a status symbol of sorts for the aristocrats, super-rich, business class and politicians.

The incidence of the use of dollar in Nigeria arose from the adoption of the Structural Adjustment Programme (SAP) when CBN officially encouraged the opening of domiciliary account, due to the fact that the country was in dire need for foreign exchange to foot the cost of accumulated foreign trade bills. This encouraged and allowed hotels to charge and accept dollars from foreigners.

There is increasing demand for dollar for payment of school fees by some schools, demand for the payment of flight tickets in dollars by some foreign airlines while estate developers also prefer to be paid in dollars when selling or renting houses. Payments are also made in dollars for purchase of items in supermarkets.

Officially, naira is the only legal tender in the country but in most parts of Lagos, Abuja and Port Harcourt some schools fees are quoted in dollar from primary to tertiary. Some of them include British International School Victoria Island, which charges $26,750 + N200, 000 annually per pupil, Lekki British International School, Lekki phase 1- $19,500 + 200,000 development fee. Another school is Regent Primary and Secondary School in Abuja that collect dollars as fees, Baze University in Abuja also provides an option to pay fees in dollars while American University of Nigeria pay $6,600 tuition, meals $1,900.

Hospitality institutions like the Lagos Oriental Hotel in Lekki Phase 1, Lagos Sheraton hotels Ikeja, Eko Hotels and Suites, Victoria Island Lagos etc are also known to collect both naira and dollars for services rendered. Some hotels state their tariff in foreign currencies leaving customers with the option of paying the naira equivalent.

Despite the practice being illegal and CBN’s pronouncements against it over the years, for curious reasons, authorities have allowed these big hotels to have their ways which made it imperative for Nigerians to lose grip of culture and reason in the lust for mental affiliation with the dollars lifestyle that these aristocratic segments of the hospitality industry symbolize.

Former Governor of the CBN Mallam Sanusi Lamido said it was illegal to collect dollar for service rendered in Nigeria and called it an “attitude of entitlement.”

As it is in most countries with high inflation rate, the naira is gradually being displaced by the more stable currency- dollar. However the store-of-value function of the naira as legal tender in Nigeria is being replaced by the dollar. If this goes unchecked the unit-of-account function of the naira will be displaced as many prices are being quoted in the local markets in dollars.

The grave consequences of allowing dollarization of the economy are as clear as all can see; it does not promote fiscal and monetary discipline and macro-economic stability. To allow dollarization of the economy is also to make CBN lose its monetary policy independence as well as lose control over exchange rate instruments.

This would not allow the CBN to commit an effective counter-cyclical monetary policy which means it cannot stabilise the country’s business cycle whenever that happens; it will lose its role as the lender of the last resort to the banks since it cannot print the dollars and CBN will not be able to provide liquidity assurance to the banking system.

The central bank at a point had to raised the alarm that the use of the dollar as means of payment or legal tender in local markets in Nigeria was seriously affecting the value of the Naira as most Nigerians are fast losing confidence in the local currency as a store of value.

To get a lasting Solution to the issues of dollarization, laws, policies and regulations need to be put in place and violators should be punished irrespective of who they are or stand for.

It has been observed that most CBN governors engage in ‘trial and error’ techniques to achieve its primary goals of price stability. Hence, to achieve single-digit inflation rate, the Central Bank should initially evaluate proposed measures and employ sound monetary policy models.

Increased exports of domestic ally manufactured goods and services: As a highly import-dependent nation, Nigeria should improve the production and exports of manufactured goods. This would reduce the incidence of dollarization. The President of Finance House of Association of Nigeria (FHAN) Mr. Samuel Durojaiye maintained that concerted efforts should be made towards the diversification of the economy. He further explained that ordinarily, if the economy is doing well and there is a very strong industrial base, the naira will be strong compared to the dollar and other foreign currencies and people will prefer to hold the naira more. He urged policy makers to design polices that would reinvigorate ailing industries and encourage the private sector.

Harmonisation of monetary and fiscal policies: for ultimate attainment of developmental goals, both the Central Bank of Nigeria (CBN) and the government (the three tiers) should work hand-in-hand.

According to a former Director in the Federal Ministry of Finance, Chief Omowale Kuye, Nigeria should immediately start to invoice her crude petroleum, her liquefied national gas, her cocoa, her timber and other exports in naira. Buyers should pay in naira which they will acquire with their own currencies from the central bank.