USDP’S
VISION ON NATIONAL CURRENCY
The 2008 global economic crisis which began with the collapse of major
financial institutions in the United States that rippled throughout Europe, the
Asian pacific, South America, the Far East, Africa, and even our very country,
Cameroon, exposed a number of vital and important components that makes nations
function effectively:
(1) The interdependence of nations, economies, and societies;
(2) The critical role of currency value in the functioning of the
economy. The truth is all countries and social societies must develop and
maintain a currency of exchange that allows for trading, exchange of goods, and
transaction of business within the social system. This economy of currency is
established by the governing authority of the nation and serves as sustaining
the component of everyday functioning and stability of the nation. Without this
common national currency it would not be possible to exist as a nation. Nothing
happens without currency, and so everyone in the social structure pursues
access to and possession of this currency. USDP's approach to fight elastic
poverty is contingent on the creation of a national currency in Cameroon.
NEGATIVE ROLE OF
DEVALUATION AND DEPENDENCE ON CFA
Devaluation has been used in the historical past and also today, as a
strategy intended to stabilize an economy in turmoil. In the most basic terms,
currency devaluation literally means “deliberately reducing the value of
currency against the currency to which it is pegged”. It is essentially
motivated by market pressures and conducted under the authority of governmental
policy makers. The policy position has a significant impact on the quality of
the lives of the people of the country. The people of Cameroon therefore need a
government that provides details on the basis of any devaluation of their local
currency with additional information on what the government will do to minimize
the negative impacts.
Cameroon has experienced currency devaluation in the past that was
predominantly influenced by the International Monetary Fund (IMF)
recommendation. The Cameroonian people will also need to know the outcome of that
devaluation and what the government is doing to prevent any future devaluation.
The United States of America was under a serious recession that was
declared to have ended by the National Bureau of Economic Research in 2009. The
United States and the global economic crisis did not just start over night and
end in a day. It went on for a period of time and it is still being felt by
many people around the globe today. This was due to several factors
that included:
1-The fundamental
source of US economic challenges, from joblessness, to unresolved housing
strains and sovereign debt crises, is that their policy makers had repeatedly
opted for fiscal band-aids and monetary distortions instead of addressing the
core problem head-on. That core problem was and is simple: the careless
encouragement of asset bubbles (assets were unscrupulously over- valued without
a basis for a long period of time) and the refusal to restructure bad debt.
2-Encouraged by
inappropriately easy monetary policy and laxed regulatory oversight, the U.S.
went on a debt-financed binge of consumption and unproductive investment that
lasted nearly a decade.
3-When that binge
collapsed, policy makers ignored the fundamental need to restructure bad debt,
and instead fought tooth and nail to defend bondholders and lenders who had
extended credit carelessly. Of course, part of the reason that policy makers
have protected bondholders at every turn is the constant fear-mongering that
the financial system will implode if bondholders suffer any loss.
As a result of all of these failures in the US financial policy system,
we are now left with a global financial system where the debtors (from
individuals (home owners especially), financial business institutions to major
corporations etc) are incapable of making good on those debts, and governments
around the world are frantically trying to prop up bad debt with public funds
and monetary policies aimed at distorting the financial markets even further.
The European economies including that of the French have been dragged into the
mess because some of their governments made similar mistakes as the US, and
also because of the involvement of US banks in their financial operations.
In addition, because the Europeans are using a common currency and carry
out trading activities across borders, failures in the financial system of one
of their countries would have a negative impact on most of the others. Though
Cameroon is impacted by this situation because it is part of the global system,
more especially because their currency is significantly controlled through the
French FRANC, the Cameroon people need an explanation from their local
government on their specific role.
The explanation will need to include information on how other countries
with currencies not pegged to a European currency have been affected.
Cameroonians need to know whether France, which is a large trading partner with
Cameroon, has simply decided to punish Cameroon in order to take advantage over
the benefits of the devaluation of the FCFA; that is to buy Cameroon products
cheaper and fuel their economy. This also applies to other foreign Cameroon
trade partners who are currently powerful enough that they directly influence
the global financial policies.
It is important to note that the value of every currency is measured by
its productivity among other factors. The value is also based on its worth in
the global foreign reserves that determine its ability to import and trade
across other currencies such as the dollar. Currency exchange rates in
international trade are either fixed to a particular currency or float and the
rate as is detected by the market forces. The USDP government shall be bold
enough to discuss with the Cameroonian people, their position on a local currency
that is not pegged to the French franc. It is worth noting that currency
revaluation and devaluation entails the following:
-Under a fixed exchange rate system, devaluation and revaluation are
official changes in the value of a country's currency relative to other
currencies. This is typical for the case of currencies that are pegged to a
specific currency.
-Under a floating
exchange rate system, market forces generate changes in the value of the
currency, known as currency depreciation or appreciation. This is applicable to
currencies that are not pegged to any specific currency.
-In a fixed
exchange rate system, both devaluation and revaluation can be conducted by
policymakers, usually motivated by market pressures.
-The charter of
the International Monetary Fund (IMF) directs policymakers to avoid
“manipulating exchange rates...to gain an unfair competitive advantage over
other members.”
Under What Circumstances Would a Country devalue its
currency?
When a government devalues its currency, it is often because the
interaction of market forces and policy decisions has made the currency’s fixed
exchange rate untenable. In order to sustain a fixed exchange rate, a country
must have sufficient foreign exchange reserves, often in dollars, and be
willing to spend them, to purchase all offers of its currency at the
established exchange rate. When a country is unable or unwilling to do so, then
it must devalue its currency to a level that it is able and willing to support
with its foreign exchange reserves.
A key effect of devaluation is that it makes the domestic currency
cheaper relative to other currencies. There are two fundamental implications of
devaluation.
First, devaluation makes the
country’s exports relatively less expensive for foreigners.
Second, the
devaluation makes foreign products relatively more expensive for domestic
consumers, thus discouraging imports. This may help to increase the country’s
exports and decrease imports, and may therefore help to reduce the current
account deficit.
There are other policy issues that might lead a country to change its
fixed exchange rate. For example, rather than implementing unpopular fiscal
spending policies, a government might try to use devaluation to boost aggregate
demand in the economy in an effort to fight unemployment. Revaluation, which
makes a currency more expensive, might be undertaken in an effort to reduce a
current account surplus, where exports exceed imports, or to attempt to contain
inflationary pressures.
Effects of Currency Devaluation: A significant
danger is that by increasing the price of imports and stimulating greater
demand for domestic products, devaluation can aggravate inflation. If this
happens, the government may have to raise interest rates to control inflation,
but this usually happens at the cost of slowerAnother risk of devaluation is
the psychological effects. To the extent that devaluation is viewed as a sign
of economic weakness, the credit worthiness of the nation may be jeopardized.
Thus, devaluation may dampen investor confidence in the country’s economy and
hurt the country’s ability to secure foreign investment.
A further possible consequence of devaluation is a round of successive
devaluations. For instance, trading partners may become concerned that
devaluation might negatively affect their own export industries. Neighboring
countries might devalue their own currencies to offset the effects of their
trading partner’s devaluation. Such “beggar thy neighbor” policies tend to
exacerbate economic difficulties by creating instability in broader financial
markets.
Devaluation in some situations is expected to reduce unemployment. This
is typical and more evident for countries that have developed and established
high volume industrialized production capabilities. In such a case, the lower
cost of their products that is a result of devaluation will then trigger an
increase in demand driving supply up.
In order to keep up with the demand pressure by increasing on the
supply, more people will then be employed. If the present regime in Cameroon
has opted for devaluation with the goal of reducing unemployment, then this
would have been discussed with the citizens. Currently, there is no evidence of
an industrialized infrastructure in Cameroon that can attract foreign investors
or venture capitalists or encourage the local entrepreneurs to build or expand
any large scale manufacturing.
If the present government of Cameroon is hoping to create jobs as part
of the deliverables from the devaluation, the people need to know if provisions
have been made in terms of the devaluation to create an industrialized economy.
Energy supply, highway transport systems, potable water systems,
technical/vocational education institutions and health care systems are less
than adequate to meet the expectations for industrialization. In addition, the
present Cameroon government will need to substantiate their argument, if there’s
any, with a report on the impact of the last devaluation on employment.
Examples of the Impact of Devaluation on
the Quality of life to an ordinary Cameroonian.
Example I: Impact on the Currency FCFA against
the Dollar:
to pay for any imported items. Examples of commonly
imported items include; cars, needs for educational training, health care needs
like medications, clothing (apparel), office equipment, telecommunication
devices, both residential and industrial electrical appliances, etc. Chart II
below shows how the cost in FCFA will change at various devaluation rates.
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