“The argument that the N5,000 bill should not be introduced because it would spur corruption does not hold here because those that are using our currency for corruption have already migrated to  the dollar because the naira has lost its value.  The dollar has now become the store of value.  That is why we are introducing a higher bill of value because we don’t want to dollarise our economy.  We need to be in charge of the money that comes in and goes out”.

 The above passage is an excerpt from the CBN Media Director’s presentation at the commencement of a sensitisation campaign on the planned currency-restructuring program.  We may deduce from the above that CBN recognises that corruption is facilitated by currencies with high denomination/values!  

We note, for example, that the adoption of dollars for the facilitation of the $620,000 allegedly collected as bribe by Farouk Lawan from Femi Otedola is in consonance with Okoroafor’s observation.  Consequently, the N5,000 note will be introduced by the CBN to compete as the instrument of choice against the dollar for such corrupt transaction!

The CBN Media Director also willfully provided us with the reason why the naira fell out of favour with the public; according to him, ‘the naira has lost value’.  Regrettably, however, the reasons for the loss in the purchasing power of the naira were not provided.    

Indeed, loss in a currency purchasing values is primarily caused by high inflation rate.  In this manner, one can understand why the N1,000 note can presently only buy about 40% of its original value when it was first introduced in 2005.  The loss in value is due to annual inflation rate of over 10%.  Consequently, the N5,000 denomination will hopefully command the purchasing value, which the N1,000 note enjoyed at birth.

What, of course, Mr. Okoroafor did not say is that unless inflationary spiral is contained, the N5,000 naira will also lose value over time such that a N10,000 note will become expedient to facilitate transactions.

CBN also indicated that naira’s loss of value has led to dollarization of the economy.  From the foregoing, however, it is evident that the loss in the purchasing value of the naira is the product of inflation; in other words, if we can contain inflation, it will not be necessary to produce higher naira denominations.  The question, therefore, is how do we restrain inflation?  

Given that inflation is the product of too much money chasing too few goods, we can control money supply in the economy, to curtail inflation and simultaneously improve naira value without the recourse to higher denominations in our currency profile.  Zimbabwe travelled this path and ultimately inevitably introduced Zimbabwean one billion dollar note, which was only equivalent to about US$1.  By the same token, the N1,000 note, which was almost $9, when it was first introduced in 2005 has lost over 30% of its parity, such that the N1,000 note is now only equivalent to about $6 because of annual double-digit rate of inflation.  So, it is evident from the above that CBN’s inability to properly manage money supply has resulted over time in an inflationary spiral, which has made naira to lose value.  In other words, Central Bank’s failure in monetary policy management is the cause of the so-called dollarisation of the economy as decried by the apex bank’s Media Director!

We have maintained in this column for many years that the unbridled increase in money supply, which inevitably drives inflation, is actually the result of CBN’s monthly substitution of hundreds of billions of naira for the dollar component of distributable revenue.  Thus, the higher our dollar revenue, the higher will be naira availability and extended credit capacity of the banks, and ultimately the higher will be the spectre of excess liquidity, while inflation will continue to destroy our social welfare.

In reality, if CBN is truly concerned about the value of the naira, and its position as a currency of choice vis-à-vis the dollar, CBN must be aware that its monopoly of the foreign exchange market is inappropriate and destructive to the economy.  

The adoption of dollar certificates for the payment of dollar-derived revenue will immediately transform the market dynamics for naira against the dollar such that in place of excess liquidity, there will now be controlled naira supply with more dollars chasing the naira.  In this manner, the naira will become the currency of choice and there will be no need for the introduction of higher and higher denominations to accommodate loss of purchasing power as a result of inflation or indeed the need for the promotion of the naira as the currency of choice for corrupt transactions.