By DELE SHOBOWALE
No government deficit can create inflation unless the uantity of money goes up.— G. Haberter in, Inflation, its causes and cures. (VANGUARD BOOK pg I03).

SANUSI Lamido Sanusi, the Governor of the Central Bank of Nigeria, CBN, belongs to a small league of public officials – including Obasanjo, IBB, Jonathan, and now Okupe – whose pronouncements  are guaranteed to provoke controversy.

Even merely saying “Good morning” at 7 a.m is sufficient to ignite rejoinders. All sorts of meanings will be read into the statement; motives would be imputed and accusations made by the political opposition – even before the announcement has been studied in detail.

It was to be expected, therefore, that the first voices to be raised against the proposed N5000 bill, as well as the coining of lower denomination bills, were those of the Action Congress of Nigeria, ACN; the All Nigeria Peoples Party, ANPP; and the Congress for Progressive Change, CPC

It is really unfortunate because most of the criticisms were long on politics and personal animosities but short on economic principles.

It was indeed a real “tempest in a tea pot”, amusing even if not illuminating. At the risk of being labelled an apologist for the CBN Governor, it is vital to separate, the politics and personal antipathies against Sanusi from the economic  repercussions of the initiative; which are at best minimal; rendering the entire measure perhaps “unnecessary”.

Increasing inflation

The most common criticism by people whose grasp of economic principles centres around its likely acceleration of inflation.

The National Publicity Secretary of one of the political parties after asserting, as if it were true, that “the action of the CBN would lead to inflation” went on to proclaim that it is a “premeditated agenda to further mop up cash from the nation’s space”. Only, a non-economist or a politician could contradict himself in one sentence without realizing or caring about it.

Now the generally accepted definition of inflation is “too much money chasing too few goods (including services). Obviously, if “the premeditated agenda is to mop up money from the nation’s space”, then it cannot be inflationary. If anything at all, it will reduce aggregate spending and lead to recession, at best; or depression at worst.

The other aspect of the criticism, namely, the aversion of Nigerians to spending coins, while more valid, as the very recent experience by the CBN, under Professor Soludo, demonstrated can be taken care of by taking additional measures. This matter will be addressed later on.

Perhaps the point being made here can be made clearer by asking if it will make a difference to the total money supply or in circulation if five one thousand naira notes are replaced by one five thousand naira note? The obvious answer is: none at all. What matters is the volume of money in circulation; not whether  it is in NI00, N200 or N5,000 bills

Negation of cashless policy

Another  common “flaw” which commentators have pointed out is that the introduction of N5,000 bills negates the Cash-less policy of the CBN.

This is even less credible than the first one. To start with Cash-less does not mean No-cash”. Even the most advanced economies have not totally dispensed with cash. All they have done is to reduce the cash carried by individuals. And that varies from one country to the next and from person to person.

Anyone or business having decided to maintain a certain level of cash position will not alter it simply because the CBN has introduced a higher denomination note. If the personal level is N5,000; it can be in fifty NI00 or ten N500 or one N5,000. The cash policy determines what would be held in cash not the currency.

What does the measure represent? Devoid of all politics, personal animosities, and sentiments, the new initiative is nothing more than a verdict by the CBN that our current assortment of currencies are totally out of alignment with our spending habits and the level of prices.

A visit to the open markets, Shoprite, Park n Shop, or a car dealer will prove to any doubters that most shoppers still carry heavy wards of N500 and N1,000 notes – just to buy grocery. It costs the CBN billions of naira just to print these notes.

The cost of providing currency notes will be vastly reduced if the nation prints less. It is surprising that none of those raising their voices in opposition even found any merit in this new initiative.  It is certainly a step in the right direction and one which has not gone far enough.

Addressing our social habits: It is important at this stage to admit that some social habits will act as obstacles to the policy change. Some have pointed to corruption and increased money laundering, etc. There is insufficient time to address all of these. But, one thing is clear. Corrupt people will always find a way to defraud irrespective of whether the largest denomination is NI0 or NI00,000. And people reject coins because the smallest note is N5. Lift that to N20 and, all of a sudden, nobody will reject it.

What more needs to be done? At the moment, Nigeria parades eight currency notes – 5, 10, 20, 50, 100, 200, 500 and 1000. That is about four too many. At least four were introduced for sentimental reasons. Granted the CBN proposes to coin some existing notes.

But that is still not enough. We can do better. Here is how. Three notes – N100, N200 and N500 can be compressed into one note. Instead of having one currency for Awolowo, Ahmadu Bello and Azikiwe, why not produce one note with all three on it? Similarly, Tafawa Balewa and Murtala Mohammed can be on another note.

In the end, we can have N5,000 (Awo, Ahmadu Bello and Zik); N500 (Balewa and Mohammed, NI00, N20 and coin NI0 and N5. The savings sought by CBN will be generated and there will be no inflation attributed to currency change.