3rd September, 2012
The move to restructure Nigeria currency with the introduction of a N5000 bill elicits mixed reactions
Even with his penchant for stirring controversies, it is doubtful if Sanusi Lamido Sanusi, Governor of Central Bank of Nigeria, CBN, would have anticipated the outrage that greeted his announcement of the apex bank’s intention to carry out another restructuring of the nation’s currency. Speaking at the Abuja headquarters of the CBN on Thursday 23 August, Sanusi told journalists that President Goodluck Jonathan had already approved the bank’s plan to introduce a N5,000 note and reduce N5, N10 and N20, which are in notes, to coins. Margaret Ekpo, Funmilayo Ransome-Kuti and Hajia Gambo Sawaba, three women that were prominent figures in Nigeria’s struggle for independence, were selected to be on the new N5,000 note.
Under the exercise, ironically tagged Project Cure, Sanusi announced that the restructuring will also result in the redesign and embedment of new security features in the existing N50, N100, N200, N500 and N1000 denominations. At the end of the exercise, expected to be completed early next year, Nigeria’s money structure would be made up of six coins – 50k, N1, N2, N5, N10 and N20 – and six notes – N50, N100, N200, N500, N1,000 and N5,000.
The last comprehensive review of the country’s currency carried out in 2005 resulted in the introduction of the N20 polymer banknote. This was followed, in 2009, by the conversion of N50, N10 and N5 into polymer banknotes. Sanusi said the impending exercise resulted from a review of the existing currency series carried out by CBN in 2012, which, among others, revealed that there was public apathy to the usage of the 50k, N1 and N2 coins introduced in February 2007. He added that several stakeholders’ fora were conducted in 2011 on currency restructuring to gauge public and independent perspectives on the existing banknote and coin series. “The issues raised and the subsequent findings and decisions were summarised as follows: due to inflationary pressures, the CBN should coin lower denominations of currency up to N100. The relevant denominations in this category are N5, N10, N20, N50 and N100; the need to encourage the usage of coins; and enhancement of the quality of banknotes,” Sanusi said, suggesting that the intended currency restructuring was influenced by the desire of the Nigerian public.
The instant outrage that greeted the announcement by the CBN, however, suggested that the bank may have consulted with the wrong set of Nigerians or that the consultation did not go far enough. Hardly had Sanusi rounded off the press conference than Nigerians of all shades began to criticise different aspects of the proposed restructuring.
Last Monday, the National Assembly joined the fray as the Senate Committee on Banking, Currency and other Financial Institutions ordered Sanusi to suspend all plans to introduce the N5,000 banknote. “I believe that a project of this nature requires parliamentary approval, because of the numerous and fiscal implications on the entire economy,” Bassey Otu, chairman of the committee told reporters in Abuja. In reaction to the directive by the committee, Ugochukwu Okoroafor, spokesperson for the CBN, said the apex bank will enter into discussions with the National Assembly over the issue. But as Sanusi indicated that President Jonathan had given approval to the exercise since late 2011, it is doubtful if the National Assembly is constitutionally empowered to stop the Central Bank.
Despite this, many Nigerians believe that Jonathan should have, at least in this instance, called Sanusi to order as they believe that the exercise is likely to do more harm than good to the economy. The most criticised aspect of the restructuring is the proposed introduction of a single N5,000 note. One argument is that introducing the “super note” is a contradiction of the cashless policy which the CBN has spent millions of naira to promote in the past six months. Instead of cash, the apex bank in its numerous advertisements and commercials, is asking Nigerians to use virtual money products such as cheques, ATM, debit and credit cards. To further encourage the use of virtual money, CBN had rolled out a policy limiting the amount of cash a customer can withdraw from the bank.
But many argue that by introducing the N5,000 note, which will make it possible for N1 million to be easily held in one pocket, the apex bank, contrary to its cashless policy, is facilitating the use of cash for transactions. “l thought that we are saying that we want to operate a cashless society. This exercise is antithetical to the objective. You can’t say you want less cash and you embark on printing a higher denomination,” said Professor Wilson Herbert, a finance and accounting expert. He added that the N5,000 bill initiative is probably being introduced to aid corrupt practices as it will facilitate laundry of cash by politicians. “There is no economic logic in this other than to make politicians carry more money in the pocket conveniently,” Herbert added. Professor Akin Iwayemi, President, Nigeria Economic Society, agreed that the CBN is empowered by the Act that created it to introduce denominations, but said the new policy defied logic when weighed against CBN’s cashless campaign. “Let us exercise caution and wait for the details of the plan because as we speak now, we at the NES are yet to get the details of the new currency management plan. But in a regime where you are emphasising on e-banking, one would wonder why N5,000 bill is now being introduced,” Iwayemi argued.
Sanusi, however, maintained that the introduction of a higher bill is supportive of the bank’s cashless policy, arguing that it would substantially reduce the volume of currency in circulation in the long term. Frank Akinola, Chairman, Kwara State branch of the Chartered Institute of Bankers of Nigeria, agreed with him. “Now that we are introducing N5,000, it is to further reduce the quantum of money in circulation and not to increase it. Now we need a large sum of money to make up N5,000 but when it starts, it will only be one note. It will even reduce the cash in the society,” Akinola said during the Annual General Meeting of the CIBN in Ilorin last Monday.
The biggest talking point about the introduction of the super note is its likely effect on inflation. At his press briefing, Sanusi argued that higher notes will not have any effect on Nigeria’s inflation rate:“Inflation in Nigeria is a monetary phenomenon. Secondly, in some countries such as Singapore, Germany and Japan, the highest denominations are 10,000SGD, 500 euros and 10,000 yen respectively. These denominations have relatively high dollar equivalent. The levels of inflation are, however, lower at 2.8, 1.1 and -0.7 as at 2012,” the apex bank chief said to justify his claim.
But not many agree with him. For one, introduction of higher value notes may send a wrong message about the ability of the Nigerian government to control inflation. Some analysts who spoke with this magazine last week cited the example Zimbabwe and noted that in countries experiencing hyper-inflation, the central bank prints money in larger and larger denominations as the smaller denomination notes become worthless. They also cited examples of countries like Argentina, Peru, Zaire, Angola and Zimbabwe, whose central banks had to introduce currency notes of higher values as a result of raging inflation. On the flip side, they noted that the United States has maintained till today, its denomination bills of $1 through $100 issued in 1929. Although they are still technically legal tender in the United States, high-denomination bills of $5,000 and $10,000 were last printed in 1945 and officially discontinued in 1969 by the Federal Reserve System. They, therefore, warned that the apex bank must be careful not to send a wrong signal about the state of inflation in Nigeria.
Beyond this is also the argument of whether the introduction of the N5,000 note in itself will worsen inflation in Nigeria. Some of those who disagree with the CBN Governor’s assertion on this argument noted that coins disappeared in Nigeria as the currency denomination got higher. The coinage of lower bank notes of N5, N10 and N20, it is also argued, will make them disappear from circulation like the previous coins that were introduced by the apex bank. Consequently, there are fears that items like bagged water and sweets presently selling in the lower denominations of N5, N10, and N20 may go for a minimum of N50.
There is also an argument that there is no infrastructure for processing of coins in Nigeria, unlike in the other countries where they are used on slotting machines and other places. “Coining the lower denominations and bringing them into circulation is a veritable market and raw material for goldsmiths who will melt them for other uses. The psychology of coin usage in Nigeria shows a wide apathy to it and that is why it has not succeeded. Above that, it is an invitation to an uncontrollable inflation in the country,” noted Godwin Oboh, an economist. He added: “In those countries that the CBN governor mentioned that coins are being used, they have the infrastructure. There are certain infrastructure for using coins. Nigeria lacks every infrastructure needed for its use.”
But some analysts say the fear of inflation is unjustified, pointing out that it is only the denomination, not the quantum of money being pushed into the economy that would be increased. “There is no empirical study to prove this. If an economy is strong, with a moderate employment level, low interest rate, low inflation, a virile workforce and a strong middle class, a higher denomination of the currency is unlikely to lead to inflation,” said Mazi Okechukwu Unegbu, former president of the Chartered Institute of Bankers of Nigeria. “Big denominations should be able to reduce inflation and the cost of maintaining the currency in circulation,”, said Akpan Ekpo, a professor of economics and former president of the Nigerian Economic Society in an interview with a national newspaper last week. “Our problem is structural. Whether the denomination is big or small does not matter if we are not having greater production,” he added.
Away from the serious economic arguments, some traders who spoke with this magazine expressed concerns about the implication of carrying the coins or losing a single N5,000 note. The CBN itself has not indicated what it would cost to print the new currency. But a national newspaper reported that the apex bank has budgeted N40 billion for the purpose. To many Nigerians, that is money that could be put to better use.