In an apparent admission of public rejection of lower Naira denominations for daily transactions, the CBN has embarked on a project designed to, reportedly, mop up, over-circulated and mutilated bank notes from the market. In April 2019, CBN Deputy Governor, Operations, Folashodun Ade Shonubi, announced, that the Apex Bank was putting in place strategies to enable “direct disbursement of lower bank notes to various Market Associations and Merchants through their respective Deposit Money Banks (DMBs), in order to eliminate unfit and counterfeit currency from the system, so as to sustain public confidence and preserve the integrity of the National Currency, as enshrined in Section 2 of the 2007 CBN Act.”
The latest strategy is expected to “ensure optimal supply of clean and quality notes, in a balanced denominational mix, that is both efficient and cost effective.” Curiously, however, the new initiative is mute on the controversial issue of the total rejection of primary kobo coins, which are usually required, for change, in millions of transactions daily.
Instructively, however, if inflation remains sticky above 10 per cent or Naira rate crashes again, N100, N500, and N1000 notes may regrettably, command gravely diminished values as the present N5, N10, N20, N50 lower denomination notes!! The sustained failure of CBN’s currency management strategy was captured in April 2015, in the title “KOBO COINS AND FAILED MONETARY STRATEGY”: (see www.betternigerianow.com), a summary of that article follows hereafter. Please read on.
“The absence of primary kobo coins in our currency profile has become accepted as the norm by both the public and our Monetary Authorities. Nevertheless, in successful economies everywhere, the utility value of primary coins is conversely well recognized. Indeed, the absence of primary coins is often indicative of a monetary strategy, which has failed, abysmally, to keep annual inflation, below international best practice levels of about 2 per cent.”
“Invariably, in the absence of primary coins, prices of goods and services are progressively, marginally, inflated to the chagrin of the poor consumer. Thus a vendor who has calculated N16, for example, as a viable price for his product, would nonetheless be forced to round up the price to N20 in order to avoid the inevitable hassle for change between seller and buyer.”
Consequently, it is common to see goods on offer abroad, for say $1.99, in order to attract patronage from a competitor’s product, which is offered at say $2, since the challenge of a one cent change does not arise.”
“So why is the utility value of primary coins discountenanced by Nigeria’s Monetary Authorities? The ubiquitous Secondary School Student learns that inflation is the product of too much money chasing fewer goods. The relevant question, therefore is, what is the source of too much money that ceaselessly floods the system, or is compulsively surplus Naira, divine manna, from heaven? If not, which Government Agency creates or controls money supply?”
“Well, the power to print or create money in modern economies, is primarily vested in a nation’s Central Bank, which is also mandated to actively create opportunities for Commercial Banks to expand or contract availability and cost of credit, in line with the perceived needs of the economy.”
“Regrettably, in Nigeria, as in other failed economies, this collaboration between the Central Bank and Commercial Banks has, against better judgment, created an exceedingly surplus systemic Naira supply, which has subsisted for decades, to chase, relatively modest output/supply of goods and services; invariably, this imbalance has inadvertently driven higher inflation rates.”
“Notably, therefore, the poverty level induced by unceasing fall in the purchasing value of all incomes, particularly that of the poor, is actually the product of the prevailing ‘anti-social’ partnership between Commercial Banks and CBN in the management of Naira supply. CBN has inexplicably, persisted in strategically inducing liberal supply of Naira, which Commercial Banks receive as free deposits, but in a bizarre twist, lend back to the same CBN, whenever the Apex Bank embarks on its borrowing spree to remove perceived market surplus Naira, from the money market, so as to reduce consumer demand and restrain rising inflation!”
“Clearly, as belatedly publicly admitted by Ex-Governor Lamido Sanusi, the Commercial Banks lend back the same Government allocations they received as free deposits with zero interest to CBN, with interest rates in excess of 10 per cent!”
“Alarmingly, CBN’s liquidity ‘mop up’ projections to avert inflation in 2015 suggest that, Commercial Banks primarily, may earn over N600bn as interest charges from these “useless” Government borrowings.”
“Prof. Chukwuma Soludo, former CBN Governor, unexpectedly, also embarked on the futile re-introduction of primary kobo coins in 2007; billions of Naira were expended on the production and the related campaign for adoption of the new coins in denominations of N2, N1 and 50K. Predictably, the coins were rejected by the public, because they commanded no real value. Not even CBN's directive that 2 per cent of cash holdings of Commercial Banks should be primary coins, was enough to encourage their adoption. Ultimately, the coins were advertised for sale and auctioned at a fraction of their original cost. In this event, every Nigeria became a looser to Soludo’s predictably, failed strategy to re-introduce coins.”
“Curiously, no one was sanctioned for this huge waste; surprisingly however, barely eight months later, Soludo unexpectedly came up, again, with his strategic Agenda for the Naira, with a fresh plan to produce a new currency profile that re-denominated (read as redecimalised) our currency, such that N100 became N1, while the existing N1 became one kobo coin. However, Late President Yar’Adua was probably not convinced that it was defensible to produce two currency profiles in the same year, and therefore ruled, despite the presumed autonomy of CBN on Monetary Policy, that the whole project be suspended.”
“It was certainly a peculiar mess that, Soludo lumped his proposal for re-denomination together with a redemptive recommendation, to which ironically, he had remained in denial for over 4 years, that monthly distributable foreign revenue allocations should be effected with dollar certificates so that the unceasing flow of Naira supply that horridly drives inflation will be better managed. Sadly, despite the self-inflicted curse of surplus money supply, CBN and its Monetary Policy Committee have still remained in denial, that CBN’s unilateral determination of Naira exchange rate and substitution of dollar denominated Government allocations with Naira is actually the origin of systemic surplus Naira supply.”
“Notably, however, Naira has since lost over 60 per cent of its purchase value since 2007 as a result of double-digit inflation and creeping Naira depreciation.
“Incidentally, despite CBN’s promotion of electronic platforms, for prompt claims settlement, Nigerians still carry significant cash values for transactions; consequently, former CBN Governor, Lamido Sanusi, sought to introduce a N5000 note to facilitate portability; Nigerians, however, quickly recognized that this was a sure path to the eventual issue of increasingly valueless N10,000 and N20,000 notes, if the root cause of inflation, i.e. the surplus cash syndrome, was not successfully addressed; the public, therefore, outrightly rejected Sanusi's N5000 note.”
“Nevertheless, the adoption of increasingly higher denomination currency, at any time, would clearly present serious accounting challenges, such that, with untamed inflation, a bottle of coke, for example, could easily cost N1000 as was the case in Ghana when 10,000 cedis exchanged for $1 before Ghana restructured their currency in 2006-7 with 4 decimal points, to make one new Ghana cedi equal to $1.1”
“The time is probably ripe for naira re-denomination by, say two decimal points, so that N2=$1, so that, we will restore and enjoy the commercial utility and the competitive economic attributes of primary kobo coins.”
“Instructively, however, if CBN ceases to unilaterally determine the Naira rate, and also ceases to substitute Naira allocations for monthly distributable dollar revenue, inflation will rapidly recede, while cost of loans will dive, and economic renaissance will truly begin!!”
SAVE THE NAIRA, SAVE NIGERIA!!