to introduce a N5,000 note into our currency denomination system and
the new note would have the faces of the three late most prominent
Nigerian female activists in our history, the politician and social
mobiliser, Margaret Ekpo (1914 - 2006); politician and activist Hajia
Gambo Sawaba (1933 - 2001) and politician and women's right activist
Funmilayo Ransome-Kuti (1900 -1978). I thought and still think that
this recognition of our late Amazons was great news because Nigerian
women have represented great moral and political strength in our
society that had been hardly recognised. I however wondered about the
N5,000 and its coherence with our cashless policy. The story about the
Amazons never saw the light of day. There was immediate and almost
total condemnation of the new policy by Nigerians. The visceral
reaction of Nigerians against the policy deserves some introspection.
The popular view is that the new currency would fuel inflation, it
would make the process of the delivery of large bribes easier, and it
would contradict the cashless policy which is supposed to move
Nigerians away from large cash transactions to electronic payment
systems. In addition, many commentators have presented to policy
measure as an anti-people measure that would increase suffering of the
masses.
The Governor of the Central bank, Sanusi Lamido Sanusi, is a person of
strong convictions and he has been vigorously defending the new policy
measure with full support from the President and his economic team. He
has queried the assumption that the introduction of the larger
denomination per se would fuel inflation. He has argued that there is
no evidence that the introduction of higher notes leads to more
inflation in itself unless it is accompanied by an increase in money
supply. He has also pointed out that over time, inflation and
devaluation have indeed compelled our country to introduce higher
denominations to manage costs and improve convenience. He has also
argued that some countries like Singapore, Japan and Germany do have
high denomination notes with low inflation. He has also made the point
that we print a lot of currency every year at high costs and that we
pay third parties an enormous amount because they control the patent
on our currency and his strategy is to liberate us from this yoke by
printing locally. Finally, the Central Bank has made the point that
they do need higher denominations because there will be people such as
traders who will still engage in large cash transactions.
I hereby make myself unpopular by saying I find the Central Bank's
arguments cogent and realistic. The cashless policy will take a long
time to become reality and some Nigerians will continue to make large
scale cash transactions. These people will keep a lot of their cash
outside the banking system and those of us whose salaries are paid
through banks will be forced to operate the cashless policy. We are
moving towards a bifurcated Nigeria in which the poor and salaried
workers operate the cashless policy and the others will continue to
swim in cash. Maybe the expectation is that armed robbers will move
away from us, ordinary citizens, and focus on the traders and large
scale bribe givers and takers and maybe over the next ten years, these
people will learn the value of using banks, cards and electronic
payment systems. The fact of the matter is that the majority of
Nigerians earn less than three hundred naira a day and seldom use the
1,000 naira note. Large scale cash transactions are done by a
minority.
I never got into the frenzy of screaming about the 5,000 note but I
have serious concerns about the lower end and the policy of coinage
which has received much less attention. The proposal to change the N5,
N10 and N20 notes to coins is the real issue of concern. Nigerians
know that when the N1 was turned into a coin and N2 was introduced,
two things happened.
The coins disappeared and items that used to sell for N1 or N2 jumped
to N5. It is this concern that has agitated Nigerians. People are
afraid that pure water sachets, sweets, a box of matches and other low
cost items will all jump from N5 or N10 to N50 and this type of
inflation really affects the masses. We have not heard explanations on
why coins disappeared from the system. There are even rumours that the
metal in the coins have much more valuable than the face value of the
coins so they are melted to make jewellery for the people. Nigerians
are clearly concerned about this denomination induced inflation and
need answers to their questions.
Of course we have been having steady inflation since our currency was
devalued in the 1980s and there are many factors that breed and
sustain it. The impact of this inflation is that over time we need
more Naira to purchase any given good or service as the currency is in
effect being devalued. This means that over time you need to carry
more notes which become inconvenient.
That is the reason to periodically increasing the face value of the
denominations and this has been on-going for three decades. My sense
however is the coinage of lower denominations of notes has impacted
greatly on the poorest and that is the main reason for the strong
opposition to the new policy. The Central Bank and the Government
should consider this concern seriously and rethink the coinage policy.
On the N5,000 policy, I accept the argument of the Central Bank that
higher notes per se do not cause a loss in the value of the currency,
rather they reflect the fact that the currency has already lost some
value due to inflation. The high cost of printing which has been
emphasized by the Central Bank is not as convincing.
One fall out of the debate is that we now know that billions is spent
each year printing these notes and that the patent owners of the notes
are making a killing. However, we have not heard by how much that
budget will reduce if the new policy is implemented.
I know that in economics, Central Bank monetary policies are
considered too serious a field to allow for action based on the
popularity of views expressed. Central bank administrators therefore
often take measures that are very unpopular if they are convinced that
the said measure will in the long run help the economy. In this case
however, I have not heard strong arguments of the disastrous impact of
not raising the denomination on our economy.
Given the situation, the Central Bank can go ahead and change the non
controversial denominations - N5 to N1,000 while the debate over the
high end - N5,000 and the new coins continue.
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