Sanusi’s Currency Restructuring, a Devaluation Gambit

When Nigeria’s Central Bank Governor, Sanusi Lamido on 23 August 2012, announced the proposed comprehensive restructuring of the nation’s currency tagged “Project Cure” which will herald the introduction of the N5000 note and the coinage of N5, N10 and N20 naira notes, he may never have envisaged the spontaneous outrage and condemnation that greeted the move. His argument that coining the lower denominations of the naira is necessary due to inflationary pressures and that the introduction of a higher bill will reduce the volume of currency in circulation in the long term seems to have fallen on deaf ears! A vast majority of Nigerians questioned the rationale behind the introduction of the “Super note” which seems to be at variance with the cashless policy of the Central Bank of Nigeria (CBN). They further argued that Nigerian’s well known apathy towards coins as a means of transaction which led to the extinction of previous lower denominations, will also affect this plan, and will make the proposed N5, N10, N20 coins fizzle out. However, Sanusi seems not to be alone as some economists and experts have thrown their weight behind him and dismissed the argument of critics.

Frank Akintola, Chairman, Kwara State branch of the Chartered Institute of Bankers of Nigeria agreed with the CBN that introducing the N5000 note is to further reduce the quantum of money in circulation and not increase it. He stated that its introduction will reduce the cash in the society since a large sum of money will no longer be needed to make up N5,000 because it will then be one note. The devaluation of the naira has been blamed for the rejection of the coins. Solomon Osakwe, an economist reasoned that in 1982, $1 exchanged for 79 kobo thus making the use of the coins valuable. The nation’s monetary policy driven by debt, a volatile foreign exchange market, fiscal policy shaped by budget deficit and high recurrent expenditure have contributed to the unsuitability of coins in this dispensation, he buttressed. Based on past experience, it is feared in many quarters that the introduction of coins could lead to further devaluation of the naira on the long run. This is due largely to the Nigerian factor in which prices of goods and services respond to the highest denomination. The quantum of naira doesn’t really matter but what it can purchase.

The main reason for opposition to the introduction of the super note is its likely effect on inflation. Sanusi however argued that the higher notes will not have any effect on Nigeria’s inflation rate as inflation in Nigeria is a monetary phenomenon. He cited the examples of countries like Singapore, Germany and Japan whose highest denominations are 10,000SGD, 500 euros, and 10,000 yen respectively and which also have relatively higher dollar equivalent. “Their levels of inflation are however lower at 2.8, 1.1, and -0.7 as at 2012,” the apex bank chief stated to justify his claim. Most analysts however disagree with the claim of the apex bank chief. They posited that the introduction of higher value notes may send a wrong signal about the ability of the Nigerian government to control inflation. Zimbabwe, Peru, Argentina was cited as countries experiencing hyper-inflation in which her Central Bank had to print money in higher denominations as the smaller denomination notes become worthless. On the flip side, the United States has maintained till today, its denomination bills of $1 through $100 issued in 1929. Higher denomination bills of $5000 and $10,000 officially printed in 1945 was discontinued in 1969 by the Federal Reserve.

Critics have also wondered why a government that is claiming to be fighting corruption wants to make it easy for thieving politicians and public officials to pocket millions of Naira conveniently via the super note. A survey by the National Bureau of Statistics (NBS) shows that an over-whelming 75.1% of Nigerians are opposed to the currency restructuring with only a paltry 16.1% in strong support while 4.04 and 4.62 per cent were partially in support and against it respectively. The National assembly has also unanimously passed a resolution stopping the implementation of the new currency policy. It was foolhardy for the apex bank chief to think the only approval he needs for such a policy that has direct bearing on the lives of Nigerians is Mr President’s. Even President Obama of the United States had to go through rigorous congress vetting of his bail-out package in the midst of an economic recession.

Mr Sanusi erred by not consulting widely before making the proposed restructuring, public. A policy like this, that has far reaching implications on the economy and the average Nigerian should not be subjected to mere postulations and theoretical hypothesis. What the Central Bank should be concerned about is stabilising price through infrastructural development, reduction of real interest rate, cutting the boisterous recurrent expenditure as well as creating a well structured tax system. If any tinkering is to be attempted at all on the currency, it should be re-decimalisation that will see the present N1000 note becoming N100, and the latter becoming our highest currency. That way the Naira will regain its strength and we would be able to have a naira to a dollar. The Ghana model might be handy for Mr CBN governor’s perusal and consideration. The time to pull the brakes is now. Nigerians have spoken loud and clear! President Jonathan should call him to order because he can’t afford to add recession to the many challenges his administration is still grappling with.

 

Written By Segun Tomori


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