By Henry Boyo
IN an apparent admission of public rejection of lower Naira denominations for daily transactions, the CBN has embarked on a project designed to reportedly mop up, over-circulated and mutilated bank notes from the market. CBN Deputy Governor, Operations, Folashodun Ade Shonubi, announced, in April 2019, that the apex bank was putting in place strategies to enable “direct disbursement of lower bank notes to various market Associations and Merchants through their respective Deposit Money Banks (DMBs), in order to eliminate unfit and counterfeit currency from the system, to sustain public confidence and preserve the integrity of the National Currency, as enshrined in Section 2 of the 2007 CBN Act.”
The latest strategy is expected to “ensure optimal supply of clean and quality notes, in a balanced denominational mix, that is both efficient and cost effective.” Curiously, however, the new initiative is mute on the controversial issue of the total rejection of primary kobo coins, which are usually required, for change, in millions of transactions daily.
Instructively, however, if inflation remains sticky above 10% or the Naira rate crashes again, N100, N500, and N1000 notes may, regrettably, command gravely diminished values as the present N5, N10, N20, N50 lower denomination notes!! The sustained failure of CBN’s currency management strategy was captured in April 2015, in the title “KOBO COINS AND FAILED MONETARY STRATEGY”:
www.betternigerianow.com), a summary of that article follows hereafter. Please read on.
“The absence of primary kobo coins in our currency profile has become accepted as the norm by both the public and our monetary authorities. Nevertheless, in successful economies everywhere, the utility value of primary coins is conversely well recognized. Indeed, the absence of primary coins is often indicative of a monetary strategy, which fails to keep inflation below international best practice levels of about 2%.”
“Invariably, in the absence of primary coins, prices of goods and services are progressively, marginally, inflated to the chagrin of the poor consumer.
“So why is the utility value of primary coins not recognized by Nigeria’s monetary authorities? The ubiquitous Secondary school student learns that inflation is generally the product of too much money chasing fewer goods.
The relevant question, therefore, is what is the source of the too much money that ceaselessly inundates the system, or is it that surplus Naira falls compulsively, like rain, from heaven; if not, which government agency creates or controls money supply?”
“Well, in modern economies, the power to print or create money is primarily vested in a nation’s Central Bank, which is also mandated to actively create opportunities for commercial banks to similarly expand or contract the availability and cost of credit, in line with the perceived needs of the economy.”
“Regrettably, in our case, as in other failed economies, this collaboration between the Central Bank and commercial banks has over the years, against better judgment, created a systemic, exceedingly surplus Naira supply, which is pitched against the relatively modest output/supply of goods and services to inadvertently drive higher inflation rates.”
“Consequently, the poverty level induced by the unceasing fall in the purchasing value of all incomes, particularly that of the poor, is actually the product of the prevailing ‘anti-social’ partnership between Commercial Banks and CBN in the management of Naira supply.
Inexplicably, CBN has strategically, persisted in inducing liberal Naira creations which commercial banks receive as deposits, but, in a bizarre twist, lend back to the same CBN, whenever the Apex Bank embarks on a borrowing spree to remove, perceived market surplus Naira, from the money market so as to reduce consumer demand and restrain rising inflation.”
“Clearly, as belatedly publicly admitted by Ex-Governor Lamido Sanusi, the commercial banks lend back to CBN, with interest rates in excess of 10%, the same government allocations they received, as free deposits, with zero interest!”
“Alarmingly, CBN’s liquidity ‘mop up’ projections to avert the threat of inflation in 2015 suggest that, Commercial Banks, primarily, would earn over N600bn as interest charges from such “idle” borrowings.”
“The former CBN Governor, Prof Chukwuma Soludo, unexpectedly embarked on the futile re-introduction of primary kobo coins in 2007; billions of Naira was expended on the production and the related campaign for adoption of the new coins in denominations of N2, N1 and 50K. Predictably, the coins were rejected by the public, because they commandedno real value. Ultimately, the coins were auctioned at a fraction of their original cost, even before they were put in circulation!!”
“Curiously, no one was sanctioned for this huge waste; surprisingly however, barely eight months later, Soludo came up with a fresh Agenda to produce a new currency profile that redenominated (read as redecimalzed) our currency, such that N100 became N1, while the existing N1 became one kobo coin.
However, late President Yar’adua was probably not convinced that it was defensible to produce two sets of currency profiles in a single year, and therefore ruled, despite the supposed autonomy of the CBN, on Monetary Policy, that the project be put on hold.
Regrettably, Soludo lumped his proposal for redenomination together with a redemptive recommendation, (to which he had, ironically, remained in denial for over four years), that part of federal allocations should be effected in dollar instruments in order to better manage the unceasing flow of Naira supply that horridly drives inflation.”
“Notably, Naira has since lost over 60 per cent of its purchase value since 2007 as a result of double-digit inflation and Naira depreciation.
“Incidentally, despite CBN’s promotion of electronic platforms, for claim settlement, Nigerians still carry significant cash values for transactions; consequently, former CBN Governor Lamido Sanusi, sought to introduce a N5000 note to facilitate portability; Nigerians, however, quickly recognized that this was a sure path to the eventual issue of increasingly valueless N10,000 and N20,000 notes, if the root cause of inflation, i.e. the surplus cash syndrome, was not successfully addressed; the public therefore, outrightly rejected Sanusi’s N5000 note.”
“Nevertheless, the adoption of increasingly higher denominations would clearly present accounting challenges, such that with untamed inflation, a bottle of Coke may cost N1000 as was the case in Ghana when 10,000 cedis exchanged for $1 before Ghana restructured its currency in 2006-7 with four decimal points, to make one new Ghana cedis equal to $1.”
“The time is probably ripe for naira redenomination by, say two decimal points, so that N2=$1; in this manner, we will bring back and enjoy the commercial utility and the competitive economic attributes of primary kobo coins.”
“Instructively, however, if CBN ceases to unilaterally determine the rate, and also stop the substitution of Naira allocations for monthly distributable dollar revenue, inflation will rapidly recede, while cost of loans will dive, and economic rebirth will truly begin!”
SAVE THE NAIRA, SAVE NIGERIA!!