Currency Restructuring: The bitter Honey

I will sit on the fence. Although I will be risking being heavily stoned from both sides, it is important that I express (for criticism) the mind-throbbing ideas that has filled me up since the Central Bank of Nigeria (CBN) announced her plans to restructure our currency in the first quarter of next (2013). My postulationsrds the proposed policy is neither for nor against. I sit on the fence. And I hope that after running through my analysis, you might have compassion on my non-economist soul.
 

The CBN, largely represented by the Governor, Mallam Sanusi Lamido Sanusi, have presented a number of reasons the restructuring of the Naira must be essentially now. Major amongst these reasons are the round-figure effect on pricing and the annual cost of minting. The public on the other hand, seems to have many more reasons to deflate the credibility of CBN’s points. The loudest amongst the repercussions of the policy, as expressed by Nigerians and supported by a few experts, is inflation. Other arguments include the conflict against the budding cashless policy, money laundering, and the potential disappearance of lower denominations of the naira (being 5, 10, 20 and possibly, 50 naira) because of the natural unreceptive disposition of Nigerians to coin money.
 

I was involved in many vibrant discussions on this matter; speaking for and against at different occasions. This, I did to have the perspectives of the divides. And so, the following are the arguments.

The Round-figure effect and the justification for coins

Presently, if the price of a commodity is N500.01k, a buyer must either pay N505 (at the minimum) or the seller forgoes the N0.01k for the transaction to settle. Either way, a party must lose. Unfortunately and usually the consumer, more often, loses. In this case, an excess of N4.99 is lost by the consumer. Invariably, the consumer paid more than what the commodity is worth. Also the seller, haphazardly or/and helplessly, overcharged the customer. This is Inflation.
 

This effect also accounts for the reason a sachet of pure water has remained at N5 for more than 20years in the face of political and economic vagaries; in spite of the numerous entrants into the sector. A pure water sachet could have sold for 50k in 1998, then N1 in 2002, and steadily in that progression to whatever it costs today, if we had not abandoned the meagre coin denominations. Everyone had paid more for less. This, too, is inflation.
 

This reason alone cuts the bias for me to support the re-introduction of coins and not necessarily by converting meagre notes to coins, but by reissuing the 1k, 5k, 10k, 50k and N1 denominations. After all, all statements of account are expressed in these units today.

Will Nigerians spend coins?

Yes, we will.
 

The reasons no one sees a coin in circulation today is because of a counter-policy of the CBN in the early 1990s. In the bid to keep coins permanently in circulation,  the CBN instructed the banks not to accept same from the public. This narration, I got from a CBN staff. He also mentioned that, in fact, at that time, even the apex bank stopped receiving coins because of inadequate storage facilities. If this “fact” exhumed from the cemetery of monetary policy blunders is taken for its face value, it will suggest that since coined money stopped fulfilling its objectives as an acceptable means of payment and store of value in Nigeria, people dumped it.
 

Therefore, to adopt the usage of coins again, the CBN has the responsibility to improve and expand their storage facilities and the banks, and also encourage all banks to accept and never refuse coin deposits.

How about corruption and compacted money laundering in briefcase?

On the last count, Femi Otedola paid a bribe of $620, 000 to (dis)honourable Farouk Lawan in a sting operation allegedly mastered minded by the EFCC.
 

In essence, the point is, even if the highest denomination is N1, corruption in Nigeria is now perpetrated in foreign currencies; the US dollars preferably. With a current exchange rate of N155 to a dollar, the proposed N5000 will be around $32, and will still not be enticing to launder in billions.

Does this not contradict the Cashless Policy of the same CBN?

Well, in simple terms. It does not. Higher denominations reduce cash volume and cashless does not mean “no cash”. It is less cash.

However, there is a need to animate this position. Let us consider two friends, each owning a million naira each. One of these friends holds his "money" in 20naira bills while the other has his in 1000naira bills. Relating with this scenario, who is richer? I guess none. However, if I flip the question and ask "who has more cash?", the I guess the answer would be conspicuous. 

The philosophy as earlier stated is "less cash" and the whole concept of high-value bills is nothing but to reduce cash volume in an economy. Note my words: "cash volume" not "money volume". Therefore, it is wrong to posit nonexistent conflicts between these two harmonious ideas of the CBN except with  superior postulations. Both ideas , I think, meant well for the economy. A sumptuous icing on the cashless policy cake is what the Introduction of higher bills is.

Do we need it now?

Yes, we do. In my opinion, however, a better alternative exists – The Expiring Number Series.

If you are conversant with the terms “Old and new dollars”, you will appreciate how this mechanism helps to discourage the stashing of currencies for long period of time. We necessarily do not have to redesign every 5 to 8 years as stated by the CBN. If introduced, money in their batches will seize to be legally tenable as year passes.

How about the 40billion naira cost?

It is will be nice to note that in efforts to keep clean cash in the economy, the collaboration of the CBN and the Nigeria Security Minting and Printing Company (NSMPC) issues, prints and circulates new currency notes yearly. In empirical terms, that cost N47 billion in 2011 alone. So, if same will be repeated this year, it will cost about another N47 billion, which is N7 billion more than the estimated N40billion cost of these royalty-free new currencies.

My Concerns

In theory, theory and Practical are the same. In practical however, they are hugely not. Nigeria, as we know it today, is a country where faultless policies on paper suddenly & always become “fault-full” because of insincere/ulterior agenda, loose policy ends, hastened delivery without proper planning, and vagaries in our political equilibrium, among numerous unexplainable vices.
 

As a “many-times-fooled” Nigerian, I will vehemently kick against this policy. And as an optimistic patriot, I will ask for this policy yesterday. I have no TRUST in the body of the government and I mean no disrespect. Where are all the crooners of Subsidy removal? They promised heaven and earth. Where are the fulfilments of those promises? I have my fears. I have my hopes. And so, this is bitter honey! L
 

In a lighter mood but with some practical logics, however, would it not be better to have a win-win situation, where ALL DENOMINATIONS OF BOTH THE NAIRA AND KOBO ARE CONVERTED TO COINS?