What more than 40 per cent of deposits in Nigerian banks are in US dollar, according to the International Monetary Fund (IMF), made news — and so it should. The very optics of it is galling to national pride.

Otherwise, it should surprise no one, given the direction of the economy since the advent of the Structural Adjustment Programme (SAP) in 1986: with its globalisation, regional specialisation and a new oomph for importing from those better tooled to manufacture local needs; while developing expertise to push own exports.

For Nigeria, however, it became a near-one-way import traffic, despite the earliest gains from exporting raw cocoa and sundry cash crops. Still, whatever farmers gained from that crippled the little local agro-processing, among other factors that dealt local manufacturing a near-death blow.

The story, “40% of savings in Nigerian banks now in US dollar, says IMF”, reported by The Nation, attempted some interpreting: that the dollarisation was worsened by the botched Central Bank of Nigeria (CBN) Naira redesign policy — a jolt that forced not a few to protect their trove by converting their deposits from Naira to dollar.

That couldn’t have been incorrect. Still, it is hard to explain that an unforced cash crisis of less than three months would account for such a flare in the dollar share of local bank deposits.

The more logical explanation is that accrual had been steadily building up — unreported — over a long period of time. It therefore has become a near-structural challenge, which would need a structural re-direction of the economy to fix.

Still, on one point the IMF is spot on: “It is usually difficult to reverse,” it averred, since such dollarisation arose from the loss of confidence in the local economy; which itself is a function of a negative, nay, painful psychology of finance and business, driven by the phobia of losing money.

The fund went ahead to x-ray the problem: “The most common type of dollarisation is financial dollarisation (FD), or asset substitution, caused by a poor performance of the local currency.” As a result, “the local currency is used more for payment transactions but is replaced by the dollar as savings asset or store of value, in line with Gresham law.”

It then suggested “policy responses such as a central forex reserve build-up and associated regulations.”

While such monetary policy reforms could help to address the challenge, it’s doubtful if they would be enough. This following is why.

Before 1986, Nigeria had had its fair share of imports: a traditional exporter of crops, latter-day exporter of crude oil and importer of manufactured goods. Yet, dollarisation wasn’t an issue because Nigeria had a thriving real sector in agro-processing and sundry manufacturing: textiles, electric cables, brewery, food processing and, even much later, local crude refining and car assembly plants.

All these industries provided immense blue-collar work that engaged millions of youths. Dollarisation was only an issue when obtaining letters of credit to import machines, machine spare parts, and allied products.

With the advent of SAP, however, most of these industries got wiped out, so much so that many converted to easy show rooms of imported versions of what they hitherto locally manufactured. Not a few factories, wilting under the “cheap” but ruinous import regime, fled; selling their factory halls to Pentecostal churches and pastors.

All these had entrenched the centrality of the dollar, with the ever plunging parity of the Naira to the dollar and other foreign currencies, to fund these imports.

For sustainable relief therefore, and beyond narrow monetary policy tinkering, the return of a vibrant local real sector is crucial. With manufacturing roaring again, and the local economy humming across many sectors, the dominant currency of local trade would again be the Naira, for it’s Nigeria’s legal tender.

With newfound economic buzz, the Naira’s share of local bank deposits would rise – or even soar. That would be no magic — only logic. Banks are only temporary store houses for cash; and would, therefore, store the most vibrant tool of exchange in the local economy.

So, this unhealthy dollarisation should be no call for further paralysis. Rather, it should trigger a zestful thirst for a vibrant real sector. The prospect of the new Dangote Refinery doing 650, 000 barrels a day is an exciting jab for local refining, other things being equal.

But in manufacturing and other sectors, fixing power would be crucial. That is the prime challenge for the incoming Tinubu administration.

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