THE
reported plan of the Central Bank of Nigeria (CBN) to introduce a
denomination of N5,000 notes into the economy is curious both for the
reason ascribed to it, and for the seeming absence of public
consideration of the rationale for the plan. Yet the plan, predicated on
the facilitation of the apex bank’s cashless policy, seems to have been
concluded, as the note is envisaged for launch around October 1
Independence anniversary week programme.
It is uncertain what
aspect of the CBN Financial Services reform calls for large volume
currency notes such as that planned by the bank, which has so far
offered no clarification or confirmation. Rather, the Central Bank
appears to keep the justification in its repertoire for the high
denomination note, at this cycle of the Nigerian economy, as a
well-guarded secret. This is equally surprising, as the bank needs to
share information on the notes with various stakeholders, whose
confidence in the exercise will be central to acceptability and usage of
the notes in the Nigerian economy.
Central banks, the world over,
conduct their mandate with substantial emphasis on confidentiality; but
they hardly commence currency denomination programmes in a stealthy,
thief-in-the-night method, especially in an impoverished economy.
The
proposed N5,000 notes will be inconsistent with monetary policy
positions being championed by the bank over the past two years and, in
particular, this year. In a litany of measures, the bank had argued for
price stability and targeted the inflationary tendencies of government
fiscal spending. At all the Monetary Policy Committees over the past six
quarters, it decided, among others, to sterilise bank deposits with
immediate, incremental and mandatory hikes in the Cash Reserve
Requirements or liquidity ratios, and also reduction in the allowable
Net Open positions.
In August 2007, the CBN published a wide range
of its proposed reforms for the Nigerian economy. Prominent in these
was a proposal on re-denomination of the naira currency to impact on
prices; another measure is to restructure the exchange rates and balance
of payments and commence the monthly payment of Federal Revenue
Allocations partly in foreign currency.
Within the context of
charting a new monetary platform in that post-bank consolidation era,
the proposal was convincing and consistent with bank capital bubble and
liquidity management. There was potential of the country deepening key
factors of monetary management.
Even when the Presidency at the
time announced a suspension of the programme or effectively aborted it,
the credibility of the policies was never far off the mark as the way to
go to firm up the money and foreign exchange markets, combat inflation
to assure domestic price stability and provide a handle for the real
sector to flourish.
With the subsequent CBN re-examination of
banks in August 2009 and the several aftermaths of that intervention,
including the beneficial effects of recapitalising a number of
commercial banks, the Nigerian money management indices nevertheless
became worse than in 2007. Measures identical to the early proposals of
2007 became more persuasive.
In 2012, the challenges of the
Nigerian economy are more debilitating, and turned chronic by import
dependence fuelled by the consumptive streak of all Nigerians, by fiscal
indiscipline from the public sector (Executive and Legislatures) and by
deficit financing from the Federal Government. What has changed is the
severity of the liquidity management problem inside a comatose economy. A
N5,000 denominated note ought not to be part of the policy response.
Against
the backdrop of the CBN cashless policy currently running a pilot
scheme in the Lagos area, a high denomination note, in itself, creates a
deviant option for the consumer to aspire to hold large value notes and
hoard them. This is a tendency that will replicate in other cashless
enclaves and the result undermines CBN’s initiative, as well as the huge
investments of financial institutions in electronic transfers and
possible loss of business.
The emergence of N5,000 notes will be
the fifth time in 13 years of introducing new denomination notes, which
invariably accelerates the disappearance of low denomination notes and
coins and engenders an inflationary push. Large denomination notes
encourage cash hoarding, a profitable boon to counterfeiters and a
windfall to corrupt practice. The CBN should resist the temptation to
put this note into the Nigerian economy or that of the West Africa
region.
Section 19 of the CBN Act allows for the President to
approve new currency note. He should disapprove this proposal and call
the CBN to order. The expenditure for notes design and its printing is
adequate seed capital for a number of small, cottage and medium business
schemes. The N5,000 currency note is not a priority item for economic
management at this time.
It is notable that the CBN Act was signed
off without debate in the twilight of the 2007 change of
administration. Those calling for amendment of the Act are probably
concerned about this example of the bank’s doubtful priority in a policy
tool. The CBN should remain consistent with its published goals of 2007
and 2009 for enduring reforms to salvage the country’s economy.
