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Henry Boyo
Nigeria’s currency profile has notably failed to serve the needs of our people and our economy. Evidently, lower denominations of primary kobo coins and low value notes have been largely rejected by the public because of their extremely negligible purchasing power. The naira currency has lost significant value overtime, as the highest existing compact denomination of N20 (the celebrated Muri) in 1977 was equivalent to over $20.
Although in 2005, the present highest denomination of N1000 note which exchanged for over $8 initially, regrettably now, exchanges disturbingly around $3. The N1000 note also compares rather awkwardly, for example, with the new Ghana Cedi which was introduced around 2007, with highest denomination of a 100 Cedi note, and exchanges today (2019) for about $20 after the exchange rate steadily depreciated from the initial GH 100=$110 when the Cedi was redenominated.
So, now that the highest naira denomination of N1000 is presently just $3, a more robust currency profile that will truly reflect the cherished qualities of money (i.e. portability, stability in value, durability, acceptability, etc.) has become necessary. The ultimate choice is now between naira redenomination and the issue of higher value denominations of N5,000 and N10,000 notes. In contrast, the profile of foreign currencies of the US and the UK has removed resilience for decades with the highest denomination of $100 and £100 respectively because inflation rate has largely remained below three per cent.
The article entitled, “The inevitable choice between N10,000 note and redenomination” was first published on August 15, 2016. The issues raised therein, unfortunately, still remain very resonant today. I hereby republish it with some minor modification. Please read on.
“Households across Nigeria have become severely traumatised by escalating prices of goods and services. The uneasy feeling that one’s pocket has been picked has probably become common after every visit to the market, where the smallest nylon sachet may be all that is needed to pack over N10,000 purchase(s).
In retrospect, in 1977, the highest naira denomination was N20 note, popularly hailed as ‘Muri’ (because of its embossment with the effigy of the Head of State, Gen Murtala Muhammed). The N20 exchanged for the princely sum of almost $30. Regrettably, after the serial devaluations which followed the IMF-inspired Structural Adjustment Programme between 1985 and 1990, the N1,000 note was issued as naira’s highest denomination and it exchanged for just over $8 in 2005. Sadly, after the naira devaluation in 2016, the same N1,000 presently exchanges for just about $3.
Invariably, kobo coins have become widely rejected because of their worthless present value. Consequently, the erstwhile secondary denomination notes of N5, N10, N20, N50, N100, now perform roles normally reserved for hard-wearing, longer-lasting, metal currency designed to facilitate change in transactions.
Nonetheless, if the naira’s free-fall remains unchecked, and it ultimately tumbles to N1000=$1, the N1000 note will, similarly, also assume the intensive role of lower denomination coins, despite its inappropriate fragile paper fabric. In such an event, even if N10,000 note is also issued as the highest denomination, it will, regrettably, only exchange for $10. Similarly, new issues of N2,000 and N5,000 notes will also exchange for $2 and $5 respectively. Clearly, unless the fundamental flaw in the pricing model that eternally produces a weaker naira exchange rate is addressed, annual inflation rates may climb well beyond 20 per cent and propel further naira depreciation which may ultimately compel the introduction of N20,000 and N50,000 notes, just as Ghana’s currency profile in 2006 included 50,000Cedi notes which, alarmingly, exchanged for just $5, before the four-point Cedi redecimalisation in 2006-7!
Although the issue of N2,000, N3,000, N5,000 and N10,000 notes will facilitate cash transactions, it will also challenge the cashless project, on which government has invested tens of billions to implement. However, the relative success of the cashless project, notwithstanding, some critics may contend that with respect to monetary policy, the cashless project may be actually counterproductive, as the increased velocity in money circulation, that it induces, also worsens an already subsisting incendiary inflationary spiral! In other words, if for example, the same N1,000 can be used consecutively in say 10 transactions in one day on the cashless platform, this would expectedly spike consumer demand and sustain a more intense inflationary pressure, than if the same N1,000 could only be used in a single transaction in one day.
Invariably, higher denomination naira notes will facilitate portability, but the facilitation of large cash transactions also poses a security threat. Instructively, however, higher denominations will be inevitable, if the continuous slide of naira exchange rate is not arrested. From a cost perspective, the issuance of higher notes may cost less if the existing currency profile and design remain the same, while the addition of N2,000, N3,000, N5,000 and N10,000 new notes will also be popularly welcomed to replace the increasingly ‘worthless’ and grimy lower denominations below N1,000. Notably, however, as long as primary kobo coins remain worthless and rejected competitive retail pricing will again be in huge leaps of N500 and N1,000!
Alternatively, the need to restore value, portability and competitive retail best practice with the embedded usage of primary coins, may advise a three-point decimalisation of the present naira profile to drive these objectives. Under such arrangement, the current N1,000 note will be replaced with a new N1 note, while the existing N100 note will be replaced with a 10Kobo coin, so that the existing N50 note will become a new 5kobo coin. Similarly, the present N10 will become a new 1kobo coin.
Instructively, the nominal value of all naira incomes, whether salaries or rents and all transactional balances, including bank balances will also be redecimalised by three points. In the end nothing changes but the naira profile will become more compact.
In such event, one US dollar will exchange for N3.05, in consonance with the subsisting average exchange rate of about N305=$1. However, if the naira further dips to say N500=$1 before redecimalisation, the New N5 will exchange for $1 and so forth.
Invariably, currency redenomination is a much more expensive undertaking than the alternative of higher naira note issues, because a redenominated profile will incorporate the whole gamut from kobo coin (old N10) to the highest new N100=$305, with the inclusion of new designs for other standard denominations in-between.
Furthermore, redenomination would require longer production lead time and extensive public enlightenment and campaign to facilitate adoption nationwide.
A compact currency profile would notably, provide digital margins for competitive retail pricing as kobo coins and lower denomination secondary coins and notes become readily acceptable. In such event, the attrition caused by the shortage of change in transactions between petrol attendants, shop keepers and customers will become minimised. Furthermore, the re-introduction of coins with a greater purchasing value, will encourage acceptance and similarly facilitate trade with the use of slot machines, which are commonplace 24-hour dumb service outlets for a wide range of consumables abroad. (See articles titled, “Redenomination of Ghana’s currency” and “Redenomination: Why and why not?”, published in the Vanguard Newspaper editions of January 15, 2007 and September 17, 2007 respectively or visit www.lesleba.com).
Advisedly, however, the heavy funding requirement for redenomination and the complete overhaul of the naira profile can be reduced, if the Nigerian Security Printing and Minting Company is appropriately upgraded to produce a substantial part, if not all the new cash requirements.
Unfortunately, the underlying triggers of inflation and naira depreciation will not be neutralised by the mere issue of higher naira denominations or the complete overhaul of the naira profile with redenomination. Consequently, unrestrained double-digit inflation rates and a naira exchange rate, that is perennially beleaguered by undeniable systemic surplus of naira (excess liquidity) in the CBN auctions, will inevitably, fuel a new cycle of currency rejection that will, ultimately, demand these same options of higher currency denominations or complete currency overhaul, in order to recreate a compact currency profile which will be accepted and also facilitate both transactions and the accounting process.
[Punch]
