Naira restructuring: Matters arising .
THE absence of a consensus on the Federal Government’s proposal to restructure the naira and with patent thorny financial issues on the policy signpost the lack of preparedness of Nigerians to embrace it. There is need for a rethink, in order to avoid unpleasant consequences that most probably will arise on its implementation.
President Goodluck Jonathan convened a meeting of the Economic Management Team (EMT) on September 4, 2012 to put his approval stamp on the plan by the Central Bank of Nigeria (CBN) to introduce N5,000 note, redesign the N50, N100, N200, N500 and N1,000 notes and to mint N5, N10 and N20 coins. The EMT was formally briefed at the meeting for the first time about the planned restructuring of the naira by Central Bank of Nigeria (CBN) Governor, Lamido Sanusi, himself a member of the economic group, who had 12 days before then announced the proposal at a press briefing. Since then, both chambers of the National Assembly, denying any prior knowledge of the plan, have called on the apex bank helmsman for proper briefing before taking any further action on the matter.
The CBN had explained that its plan to restructure the naira was in conformity with international best practice of reviewing national currencies periodically as well as its exercise of the autonomy statutorily conferred upon it which empowers the board of the CBN, as and when deemed fit, to make recommendation on restructuring of the currency for presidential approval. However, it stands to reason that in the Nigerian federation, the 11-member board of the CBN and the President alone do not have the final word on the exclusive Federal Government (not federal executive arm) responsibility concerning “currency, coinage and legal tender (including) any matter incidental or supplementary (there) to.”
In a democratic system, presidential approval of matters relating to the national economy should reflect the expressed interest of the people and be predicated on wide consultation, which the present plan to restructure the naira – it has turned out from the various reactions – did not benefit from.
The President is the chief servant of the people. His economic mandate is constitutionally defined. The post-decision chorus of support for the currency restructuring by presidential appointees, the Bankers’ Committee over which the CBN governor presides and hanger-on consultants who blindly uphold their benefactor’s preferences is casting Mr. President as an adversary of the Nigerian people. In the present political dispensation, the people and their elected representatives in the National Assembly cannot be supplanted by fawning and unelected presidential aides and bureaucrats.
Now, the CBN position that introducing the N5,000 note would not cause inflation may be correct. But to implement the restructuring plan would exacerbate inflation because the general apathy to the use of coins would likely persist when the proposed N5, N10 and N20 coins arrive. As a result, product retail prices would most likely be fixed in units of the naira note with the smallest value. Such an outcome, given the basket of goods and services of the consumer price index, would raise prices and push up inflation. The belated EMT notion of testing the proposed coins for acceptability while the existing notes continue to circulate is wasteful and unnecessary.
Another reason proffered for planning to redesign the existing notes is to keep abreast of improvements in currency printing technology so as to outwit counterfeiters. Needless to state, counterfeiters also plan catch-up on any adopted technology. However, because the naira has depreciated monotonically over time, there has been no serious attraction to produce fake notes that cannot be easily detected. The unstated real motivation to redesign all notes should not be to end any possible secret commissions still being paid to those who initiated the present notes and enthrone new ones. Whatever the case is, the existing designs should be left for the time being.
Doubtless, the progressive introduction of high denomination naira notes as legal tender (which is the second principal object of the CBN) is a child of inflationary pressures, which in turn were begotten by the CBN’s inability to achieve its first principal object of “ensuring monetary and price stability.” If the attendant risks are ignored, the introduction of the N5,000 will make it convenient to carry and even lock away large amounts of cash. That prospect has little economic merit in the age of real time bank settlements and other cashless payment options.
Contrary to claims by the EMT and other proponents, the N5,000 note will not boost the naira’s position as store of value relative to the U.S. dollar. That attribute is dependent on whether the value of the naira is stable and/or tends to appreciate. That was why up till 1980 when the Nigerian currency remained stable and steadily appreciated against the dollar, Nigerians invariably refused to hold on to the dollar. What the EMT termed creeping dollarisation or preference for keeping dollars is highly correlated to the progressive loss of value of naira, which today has depreciated by over 99.6 per cent from the 1980 peak of N0.5464/US$1 exchange rate.
This illustrates the fact that the CBN’s Project Cure or naira restructuring plan targets the chronic symptom of an underlying economic disease that must first be cured by the Jonathan administration as a matter of priority. Therefore, the true focus of EMT and other cheerleaders of Project Cure (that seeks to shore up the naira as the preferred currency to the dollar) should be to get the CBN to adopt the international best practice of infusing foreign exchange, including government holding of foreign currency, into the economy as the precondition for satisfactorily achieving all of its statutory principal objects so as to provide a firm foundation for national prosperity.
Thus, with the CBN simply insisting that Federation Account dollar accruals be allocated to the three tiers of government through their dollar domiciliary accounts for conversion to naira revenue via deposit money banks, the naira exchange rate will be fixed on the basis of supply and demand for foreign exchange in the open market. The CBN has only to specify the transactions that are eligible to access foreign exchange. The resultant naira exchange rate will become realistic, stable and/or tend to appreciate against the dollar most of the time. Consequently the existing naira denominations will once again become preferable to U.S. dollar bills just as there will no longer arise any need to incur extra costs to print higher naira denominations.