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The inevitable choice between N10,000 note and redenomination

By Henry Boyo

NIGERIA’s Currency   profile has, notably failed to serve the needs of our people and our economy. Arguably, lower denominations of primary kobo coins and low value notes have been largely rejected because of their extremely negligible purchasing power. Overtime, the Naira Currency has lost significant value, as the highest existing compact denomination of N20 (the popular Muri) in 1977 was equivalent to over $20.

naira
Naira

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Regrettably, the present highest denomination of N1000 note exchanged for over $8 initially in 2005, but now, disturbingly exchanges around $3. The N1000 note, also compares rather awkwardly, for example, with the new Ghana Cedi which was introduced between 2006-2007 with highest denomination of a 100 Cedi note, but exchanges in 2019 for about $20, after the Cedi steadily depreciated from GH?100=$110.

Thus, in view of the present paltry value of $3 against the highest Naira denomination of N1000, a more robust currency profile that will truly reflect the cherished qualities of money (i.e. portability, stable value, durability, acceptability, etc.) has become necessary. The present choice is therefore between Naira redenomination and the issue of higher value denominations of N5,000 and N10,000 notes.

The above title “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. Please read on.

“Households across Nigeria have become severely traumatized 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 available 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, which exchanged for almost $30; regrettably, however, after the serial devaluations which followed the IMF inspired Structural Adjustment Program between 1985-90, the N1,000 note was issued as the Naira’s highest denomination and exchanged for just over $8 in 2005. Sadly, however, the same N1000 presently exchanges for about $3 after Naira devaluation in 2016.”

“Invariably, coins have been widely rejected because of their worthless present value; consequently, the N5, N10, N20, N50, N100 erstwhile, secondary denomination notes, now perform roles normally reserved for hard wearing, longer lasting, metal currency to facilitate change and transactions.”

“Nonetheless, if Naira’s freefall remains unchecked, and ultimately $1=N1000, the N1000 note will also assume the role of lower denomination coins, despite its inappropriate fragile paper fabric. In such event, even if N10,000 note is issued as the highest denomination, it will only exchange for $10. Similarly, new issues of N2,000 and N5,000 notes will exchange for $2 and $5 respectively. Clearly, unless the fundamental flaw in the pricing model that always produces a weaker Naira exchange rate is addressed, further Naira depreciation will result and ultimately N20,000 and N50,000 notes may become inevitable, just as Ghana’s currency profile in 2006 included ?50,000 notes which exchanged for just $5, before 4-point Cedi redecimalisation!”

“Although, the adoption 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 incendiary inflationary spiral!”

“Invariably, higher denomination of 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 in Naira exchange rate is not arrested. From a cost perspective, the issuance of higher notes may cost less, since the existing currency profile and design remain the same, while the addition of  N2,000, N3,000, N5,000 and N10,000 notes will be popularly welcomed to replace the increasingly ‘worthless’ lower denominations below N1,000. Notably, however, so long as primary kobo coins remain worthless and rejected, retail pricing will again be in huge leaps of N500 and N1,000!”

“Alternatively, the need to restore, value, portability and retail best practice with the embedded usage of primary coins, may advise a 3-point decimalization of the present Naira profile to support these objectives. Under this arrangement, the current N1,000 note will be replaced with a New N1 note, while 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.”

“Thus, one US dollar, will exchange for N3.6, in consonance with the subsisting average exchange rate of about N360=$1; however, if the Naira further dips to say N500=$1 before redecimalization, 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= $36, with the inclusion of new designs for other standard denominations in between.”

“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; the attrition caused by the shortage of change in transactions between petrol attendants, shop keepers and customers will become minimized. Furthermore, the re-introduction of coins with a greater purchasing value, will similarly facilitate trade with the use of slot machines, which are commonplace 24hour dumb service outlets for a wide range of consumables (See Articles titled “Redenomination: Why & Why Not?” (17/09/07) and “Redenomination of Ghana’s Currency” (15/01/07) at www.lesleba.com ).”

“The danger however, is that if the current Naira profile is not redenominated while the slide in the Naira exchange rate continues, ultimately, N100,000 and N200,000 notes with minimal value will become inevitable, despite the related drawback of portability and accounting challenges.”

“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, nonetheless, the underlying triggers of inflation, and Naira depreciation will not be neutralized 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 perennially beleagued by, persistently surplus Naira liquidity in 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, to recreate a compact currency profile which will facilitate both transactions and the accounting process.”

SAVE THE NAIRA! SAVE NIGERIANS!

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