FEDERAL lawmakers were right on target when they rose on Monday against
the latest hare-brained attempt to restructure the national currency.
Having got away several times in his three years on the job with
controversially tinkering with policies, Lamido Sanusi, the Central Bank
of Nigeria Governor, now plans to introduce a new N5,000 note, redesign
the existing notes and coin some lower denominations. As usual, the CBN
claimed that since President Goodluck Jonathan had bought the idea, the
new notes and coins would be in circulation in 2013. For now, this
adventure is speculated to cost at least N40 billion. For the sake of
our fragile economy, the CBN should be stopped.
Unfolding the
currency review, Sanusi said last week that the apex bank would
introduce a single N5,000 note, replace the existing N5, N10 and N20
notes with coins and redesign the existing N50, N100, N200, N500 and
N1,000. The N5,000 note will be used to honour the contributions of
Margaret Ekpo, Funmilayo Ransome-Kuti and Gambo Sawaba to the struggle
for Nigeria’s independence. The CBN governor also attributed the
proposed introduction of the high denomination note to “inflationary
pressures”. The redesign, according to the CBN, is in line with
international best practice whereby countries review their currency
structure every five to eight years.
Between 2006 and 2007, the
last time the CBN redesigned N5, N10, N20 and N50 notes, it claimed the
exercise was to make the notes more secure and last longer; make
currency notes smaller in size and fit easily into wallets; reduce the
cost of replacing dirty notes and ensure the notes were not exposed to
heat. Now, the CBN says it will liaise with relevant government
ministries, departments and agencies, deposit money banks, road
transport workers, market operators, small businesses, supermarkets and
vendors, to create avenues for the usage of coins. In addition, the apex
bank has promised to ensure that “coin collection is convenient and the
introduction of the new currency series will be a gradual process as
the banknotes will circulate simultaneously with the old series until
they are fully withdrawn from circulation.”
Though they appear
compelling, such arguments gloss over a number of critical issues in the
national economy. Countries redesign national currencies for many
reasons, including the need to stay ahead of counterfeiting threats and
keep counterfeiting levels low. The United States Federal Reserve, for
example, continuously monitors the counterfeiting threats for each
denomination of the U.S. currency and makes redesign decisions based on
these threats. An inter-agency committee, including the Advanced
Counterfeit Deterrence Steering Committee, makes recommendations on
design changes to the Secretary of the Treasury, who has final authority
for US currency designs. Commemorative coins and, occasionally,
banknotes are also issued to mark special occasions or to honour
individuals.
In the present circumstances, Sanusi’s priorities
are seriously skewed. The existing notes are not under the threat of
counterfeiters, the main reason notes are redesigned in open societies.
How far has he positioned the apex bank to check money laundering
activities that are so central to the nation’s anti-graft war and war on
terrorism? Neither Jonathan nor Sanusi thought of the ease with which
money launderers would be moving tons of cash across borders in
easy-to-conceal N5, 000 notes despite the crises of terrorism and
corruption facing the nation.
No serious country messes with
its national currency for the fancy of it. Nigeria is arguably the only
democracy where a central bank governor would announce such a major
policy without any input, discussion or debate by all other
stakeholders. The Senate Committee on Banking, Insurance and Other
Financial Institutions rightly pointed out that such a far-reaching
policy “requires parliamentary approval”. But Sanusi is, as usual,
pushing the envelope, testing the limits of the CBN’s vaunted autonomy.
The policy itself is patently awful, portending more problems for the
economy and hardly any benefit. Why spend N40 billion on what is
described as “a needless exercise?” The CBN’s assertion that the new
currency notes may be printed locally is disingenuous; the Nigerian
Security Printing and Minting Corporation simply lacks the capacity to
handle such a volume of work, meaning more contracts for overseas
printing/minting companies. But the last time we did it, there were
allegations that Securency International Pty Limited paid money in
bribes through its marketing agents to government officials to secure
the contracts.
The hope that the policy “will complement the
cashless policy” is even more bizarre. Most economists say the opposite.
The N5, 000 bill, they say, defeats the cashless policy by making it
easier to carry large sums of money, not less. You can stuff N1 million
in a bunch of 200 pieces! It would even make more sense to scrap our N1,
000 note to back up the wobbly cashless initiative that is failing in
the face of our weak infrastructure. Countries typically issue higher
denominations in response to hyper inflation, not on a whim.
Contrary to the CBN’s false optimism, the higher denomination and the
coining will fuel inflation. They always do. The last attempt to force
coin usage in 2006 failed miserably. The coining of N5, N10 and N20 will
effectively make N50 the lowest currency in circulation. No one, not
even banks, despite threats by the CBN, accepts coins. Coins must
satisfy a key ingredient of money: they must have general acceptance.
Nigerians simply don’t accept them because they have no use for them.
When CBN officials try to intimidate us by saying no economy operates
without coins, they fail to add that elsewhere, vending machines
dispense all manner of consumer products, thereby making their coins
valuable. Biodun Adedipe, an economist, reminds us that the cultural and
psychological attitudes of Nigerians towards coins spell doom for the
policy. Traders will simply raise prices of commodities that should be
paid for in coins.
When Sanusi compared Nigeria to the city
state, Singapore, Germany and Japan, as countries with high
denominations, he failed to say that these are highly industrialised
export-oriented economies with gross domestic product of $239.7 billion,
$3.57 trillion and $5.87 trillion respectively compared to Nigeria’s
$235.9 billion. Meanwhile, the highest denomination in circulation in
the US, the world’s largest economy with GDP of $15.09 trillion, is
$100, though its $500, $1,000 and other higher ones are still legal
tender which are no longer issued. Britain, with GDP of $2.43 trillion,
retains its 50 pound sterling note as its highest, and South Africa,
with GDP of $408.24 billion does not go beyond 200 rand note.
The overall assessment of our economy is downbeat, depicting a jobless
growth, as the United Nations Development Programme rightly declared
recently. The National Assembly should ask Sanusi how his latest
posturing helps to achieve the central bank’s primary mandate of
managing inflation which is now over 12 per cent, and inflation rates
which hover between 19 and 23 per cent and stifles growth. How does this
grand distraction revive the banking system, which is still beset with
institutional weaknesses, low credit to productive sectors and mass
staff layoffs?
Jonathan should halt this foolhardy venture
exactly the way the late President Umaru Yar’Adua stopped the former CBN
governor, Chukwuma Soludo, from implementing his ill-thought-out naira
redenomination. And if he fails, our lawmakers should confront this
tragedy of misplaced policies that has seen changes in our currency
structure five times in the last 13 years with the highest denomination
moving from N50 to N100 to N200 to N500 and N1,000, each time, fuelling
inflation. These are the same factors that have induced the rejection of
coins as legal tender and rendered the cashless policy ineffective.
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