12th September, 2012
The Institute of Chattered Accountants of Nigeria, ICAN, wishes to refer to the August 23, 2012 press statement by the Governor of the Central Bank of Nigeria (CBN), Malam Sanusi Lamido Sanusi in which he apprised the nation of the apex bank’s plan to restructure the existing profile and redesign the Nigerian currency for the sum of N40 billion. Given the spontaneous reactions of stakeholders, the Institute is constrained to make the following observations and recommendations:
•We commend the initiative to redesign the security features of the nation’s currencies with a view to reducing the huge annual royalties paid to foreign interests and also make the currencies extra secure. Such measure in our view will reduce currency counterfeiting and enhance the confidence of Nigerians in this medium of exchange.
•There is nothing fundamentally wrong with the idea to introduce the N5,000 as there are some benefits to be derived. Beside having the potential to reduce royalty payments on existing security features as well as the cost of printing and maintenance of the currencies, the initiative will enhance the profitability of the CBN and its ability to generate funds for the government. It is common knowledge that the CBN orders, prints, mints, handles and sells currencies to money deposit banks with which they carry out their intermediation functions. The margin between cost of printing and selling of currencies is one of CBN’s sources of fund. Although the cost of printing each denomination is the same, higher denominations are sold to banks at a premium and therefore, earn more for the CBN. Section 5(3) of the CBN Act 2007 requires that at year end, 75% of its net surplus must be paid to the Federal Government. Here lies an incentive to earn more money. In addition to this, the cost of cash management by banks will further reduce with positive impact on wealth creation.
•In spite of the above benefits, we are not persuaded that the N5,000 denomination should be introduced. At a time when the size of government deficit is about 2.8% of GDP (although within acceptable limit), the intention to spend N40 billion for this exercise appears to be both a waste of scarce public resource and misplacement of priority. Set against the benefits, the proposed expenditure of N40 billion will add little or no value to wealth creation. The subsisting budget deficit, financed largely with domestic borrowing at an unsustainable rate, and therefore crowding out available credits to the economy, can further be reduced by this huge expenditure of N40 billion, if redirected to the funding of infrastructural development.
•In our view, the introduction of N5000 note will eventually alter the pricing structure of products in the market leading ultimately to the permanent disappearance of the 5, 10, 20 & 50 naira notes (and even the proposed new coins) from circulation. The extinction of these smaller denominations will negatively impact the buying capacity and habits of low-income earners and the poor as goods and services will be priced above their levels. Sustained increases in prices may the unintended consequence.
•Also, we strongly advocate that the CBN should work towards strengthening the purchasing power of the naira through policy consistency. The steady slide in the value of the naira in relation to other currencies like the USA dollar, British pound sterling, etc, as an import-dependent country should be a major source for concern. As an import-dependent nation, when Nigeria converted to naira and kobo in 1973, the exchange rate was GBP£1=N2 and USA$0.30=N1. Today, the exchange rate is now GBP£1=N246.31, USA$1=N157.50. From the literature and empirical experience, devaluation benefits export-oriented economies. As a mono-product and import-dependent economy, we are most unlikely to benefit from the resultant devaluation that this initiative may unwittingly cause. Since the naira is not convertible, increasing the denomination will not check the perceived trend towards dollarisation.
• The CBN’s repeated change in its monetary policy rate is an indication of severity of inflation which it has been targeting for some time. If unemployment was lower, it would not have been a cause for worry given the established inverse relation between unemployment and inflation. To print more currency as envisaged without earning foreign revenue to support its value will put more inflationary pressure on the naira and lead to a diminution in its value. Indeed, one of the indices of a growing inflation, from economic history, is the creation of higher denominations as exemplified by Argentina, Peru, Poland, Russia, Democratic Republic of Congo, Angola, Zimbabwe, etc.
•The aforementioned press statement of the Governor did not indicate whether the introduction of the N5,000 notes will involve the printing of more currency notes to complement the existing quantity of money in circulation or it intends to substitute some smaller denominations with the proposed new note. It merely said that some currencies will be converted to coins. Whatever the intention, we shudder to think that the CBN plans to increase the quantity (volume) of money in circulation by introducing N5000 notes when the possible inflationary impact of this is common knowledge! Or does the CBN want to substitute higher denomination for smaller, more convenient, ones when Nigerians are yearning for enhanced value of the naira that will lead to the return of Kobo coins? Who is the beneficiary of a denomination that will stall transactions in rural Nigeria inhabited by 70% of the populace? Only the convenience of the elite and urban dweller will be assuaged. Following the CBN statistics that 90% of Nigerians’ cash transaction is less than N150,000, why substitute their preference for higher denomination? Is it not obvious that small transactions will be made more difficult if a proportion of each smaller denomination is eliminated?
•We are persuaded that the initiative will impair the modest gains recorded with the Anti-Money Laundering Act and the pilot cashless policy in Lagos which the institute expects to spread to the entire country by first quarter of 2013. The convenience of carriage of N5,000 notes will indeed, be an incentive, not disincentive, to carry cash. Such an incentive will defeat the acclaimed drive towards a cashless economy. If the international community perceives that we are lax in anti-money laundering agenda which higher denomination and convenience of carriage connote, we stand the risk of being the target of FATF initiatives including blacklisting with its attendant problems for the attraction of Foreign Direct Investment. This is an untoward route that we have taken before. It should be avoided.
•The heroines or amazons to be honoured- Mrs Funmilayo Ransome Kuti, Mrs Margaret Ekpo and Hajia Gambo Sawaba (of blessed memory) – deserve all the possible posthumous recognitions available because of the profound contributions and enduring legacy they made to humanity particularly, the less privileged. They represented the finest women of their era and even today, set against all best practice parameters, their achievements tower. Indeed, they were rich in ideas, principles and strong in character. As dogged fighters for the rights of the downtrodden, honouring them with the highest currency denomination belies their pro-proletariat stance. They never made any pretensions to pro-elitism and should not be painted in that light.
•Finally, the national economy is confronted with a lot of challenges requiring ingenious strategies to overcome. The cost of doing business is among the highest in the world; the very high unemployment of youths is creating a lot of social dislocations and security challenges (graduates of tertiary institutions are now hired as drivers and security guards!); double digit inflation, etc, have continued to impair the human development indices of Nigerians. These, in our view, are more critical issues for the CBN and managers of the Nigerian economy. This indirect devaluation of the national currency is unacceptable. Let’s work towards making the N1000 note the country’s highest denomination in the true spirit of a cashless economy.
•Statement issued by ICAN in Lagos denouncing the intorduction of the N5,000 note by CBN.