Organised private sector, labour and others have joined Nigerians to oppose the proposed introduction of N5, 000 note in the planned restructuring of the nation’s currency, saying it will aid corruption.
Director General, Lagos Chamber of Commerce and Industry, Muda Yusuf in his comment said although the idea of restructuring the currency is a welcome development, “there is a flip side to the policy”.
He said these include the following: The initiative is a negation of the cash-lite policy of CBN, if it is now much easier to carry around large amounts of cash. The introduction of N5,000 note will aid corruption as many cases of bribery and extortion involve use of cash. The higher the currency denomination, the better the use of cash as instruments of corruption” he said.
He added: “The risk of counterfeiting increases with denominations. The higher the currency denomination, the higher the risk of faking and this is something to also worry about,” he stated.
On the other hand, Yusuf argued:”This would mean that the use of Ghana must go bags would no longer be necessary to move large amounts of cash.
“The new currency restructuring initiative of the CBN is a step in the right direction. It should be seen as a policy response to current economic dynamics. I believe the introduction of higher denomination of N5,000 would reduce the volume of cash needed for transactions in the economy. This, by extension, would reduce the cost of currency management – printing, movement, storage and distribution. For instance a N1 million transaction would normally require 2000 pieces of N500 notes or 1000 pieces of N1000 notes. But with the introduction of N5000 notes, only 200 pieces would be needed. This is a significant reduction in the volume which offers tremendous convenience for those who have cause to handle large amounts of cash.
“The ATM machines will be able to stock larger value of cash which could last much longer. This is very valuable for bank customers, especially during holidays. Pressure on the machines will be much less as well.
“It would reduce queues in the banking hall and reduce pressure on currency counting machines. It is faster to dispense higher currency denominations than lower ones.
“Coins will find better relevance because of the higher value they would now carry. Coins have lost relevance in commercial transactions because the current values have no bearing with the prices of goods and services in the economy. Besides, coins have longer durability than notes.”
TUC, others react
Also reacting Trade Union Congress of Nigeria, TUC, and the National Union of Textile, Garment and Tailoring Workers of Nigeria, NUTGTWN, faulted the planned introduction of higher banknote of N5,000 next year as announced by the Central Bank of Nigeria under its currency redesign programme tagged ‘PROJECT CURE, advising CBN to concentrate on stabilizing the value of the Naira rather than legitimizing the devaluation of the currency.
TUC in a statement by its President-General and Secretary, Comrade Peter Esele and Chief John Kolawole, said: “We are surprised that the CBN could at this time decide to embark on the mission to make changes to the nation’s currency and to also create a N5, 000 denomination. The intention at coining the N5, N10 and N20 denominations does a psychological damage to the value of the Naira. We are surprised that despite CBN’s acquiescence to this, it still intends pushing forward with this objective.
“If the objective is truly the pursuit of a cashless economy, why would the CBN consider it too expedient at this time to also pursue concurrently the printing of more currencies especially the jumbo N5, 000 note?
“It should be remembered that the CBN has changed the face of the Naira severally in the past years mouthing the same arguments which have all proven in the long run to be baseless. We see this rather as a sign of a monetary system management gone awry and the deeper malaise of the continued wrong – headed management of the nation’s foreign exchange receipts.
“We therefore call on the CBN to immediately suspend this pursuit, allow it to be discussed nationally as our experience has shown that the outcome of this will affect majority of Nigerians adversely before any further action is taken. We would also want the CBN to tell Nigerians what it will cost the tax payers to move to this new currency regime.”
Textile union opposes new note
Textile union in a statement by its General Secretary and a Vice President of Nigeria Labour Congress, NLC, Comrade Issa Aremu said: “We oppose the proposed introduction of higher banknote of N5000 next year as announced by the Central Bank of Nigeria. Lower banknote denominations of N5, N10, and N20 will be also coined according to the Central Bank of Nigeria. The current highest banknote of N1000 was introduced in 2005. We had currency review in 2007 and 2009. It should not be customary for every CBN governor to change the nation’s banknotes. Incessant turning out of higher banknotes is an attempt to legitimize the devaluation of the Nigerian currency. There is a direct relationship between higher banknotes and devaluation of the currency.”
The CBN should concentrate on stabilizing the value of the Naira rather than legitimizing the devaluation of the currency.”
A step in wrong direction – Institute
In its own comment the Obafemi Awolowo Institute of Government and Public Policy, Lagos said in a statement noting that, irrespective of the desirable objectives that may have informed the plan to introduce the new currency, including possibly the need “to raise government revenue” and “reduce the cost of transactions”, such objectives are also likely to have “unintended effects” or inflict “collateral damage”. It said the plan signifies not only a regime of increased and sustained fiscal deficit financing but also inevitably generate further inflation that would “erode the real value of the seigniorage revenue derived” from the higher face-value currency. According to the institute the policy is likely to be perceived as an indication of government’s failure to effectively control inflation. Once this perception takes hold, increased inflation expectations can be built up quite rapidly. These have pushed many countries in the past, including Argentina (1975-1991), Bolivia (1984-1987), Zaire/Democratic Republic of Congo (1986-1996), Nicaragua (1987-1990), Peru (1988-1990), Poland (1989-1992), Angola (1991-1995), the Russian Federation (1992-1998), and Zimbabwe in the first decade of this century into a situation of hyper-inflation, which has typically culminated in the re-denomination or even complete abandonment of the entire currency system.”
ACN cautions CBN
In its own reaction, the Action Congress of Nigeria in a statement issued in Lagos by its National Publicity Secretary Alhaji Lai Mohammed warned that while the introduction of this new high denomination may serve the dual purpose of raising revenue for government on the one hand and reducing the cost of transactions on the other hand, the unintended consequences and collateral damage of introducing the N5,000 may far outweigh the benefits of the new measure.
According to the party, “first, there is a strong historical evidence that the introduction of higher and higher face value currency notes in an economy often signifies a regime of increased and sustained fiscal deficit financing. Secondly the issuance of such high value currency notes is likely to be perceived as an indication of government’s failure to effectively control inflation
“Thirdly the issuance of the N5,000 currency note runs counter to the recent policy of the Central Bank of Nigeria to promote a “cashless” economy by encouraging the increased use of non-cash transaction instruments. The introduction of a high face value currency note actually does the opposite because by reducing the unit cost of printing and transportation, it actually would promote the use of cash.
“Fourthly, the issuance of the new N5,000 currency note also runs counter to the government’s often repeated commitment to fight corruption. It is widely recognised that large scale corruption tends to be facilitated by the ease with which unrecorded and large cash transactions can be made.”
In conclusion the party warned that the introduction of the N5,000 currency note may be a step in the wrong direction, and down a slippery slope towards hyper -inflation and that it is time to abandon failed inflation-control policies and inadequately thought- through experiments.
Between 1975 and 1991, Argentina experienced a period of inflation during which increasingly higher face value notes were issued. At the begining of 1975, the highest denomination in Argentina was 1,000 pesos. This rose to 5,000 pesos in late 1976, then to 10,000 pesos in 1979 and rose further to 1,000,000 in 1981. As this trend became clearly unsustainable, a series of currency reforms followed. In 1983, the currency was re-named peso argentino, one unit of which was exchanged for 10,000 pesos. This did not curb the inflation. In 1985, another name change occurred, and a unit of the new currency (austral) was exchanged for 1,000 pesos argentinos. Finally one new peso was exchanged for 10,000 australes.
Bolivia had a similar experience between 1984 and 1987. Before 1984 Bolivia’s highest currency denomination was 1,000 Bolivian pesos which rose to 10,000,000 Bolivian pesos by 1985. In the inevitable currency reform that came in 1987, the currency was renamed Boliviano, a unit of which exchanged for 1,000,000 Bolivian pesos.
Nicaragua ‘s inflation episode was from 1987 to 1990. In early 1986, the highest denomination in Nicaragua was 10,000 cordobas which rose to1,000,000 cordobas by 1987. In that country’s 1988 currency reform as a result of inflation,one new cordobas was exchanged for 10,000 old cordobas. By 1990 however , the highest denomination was again one hundred million new cordobas. Finally in another currency reform in 19991 one new cordobas was exchanged for 5,000,000 old cordobas.
Peru experienced its worst inflation between 1988 and 1990. Here by 1986 the highest denomination was 1,000 intis which increased to 5million intis by 1991. That country’s currency reform of 1991 created the neuro sol, one unit of which exchanged for one million intis in order to combat the high value currency induced inflation.
Two examples in Europe will suffice. In Poland the highest denomination by 1989 was 200,000 zlotych which rose to 1,000,000 zlotych in 1991 and 2,000,000 zlotych in 1992. In the 1994 currency reform, one new zlotych was exchanged for 10,000 old zlotych.
In the Russian Federation, the inflation experienced over the 1992-1998 period led to the creation of the new ruble in 1998, a unit of which exchanged for 1,000 old rubles.
Nearer home, examples from Africa include Angola, Zaire/DRC and Zimbabwe.
Angola experienced hyper-inflation between 1991 and 1995. It’s original currency, the kwanza was replaced in 1990 by the novo kwanza. Early in 1991 the highest denomination was 50,000 novo kwanza. By 1994 this rose to 500,000 novo Kwanzaa. In that country’s currency reform of 1995, one unit of the re-adjusted kwanza was exchanged for 1,000 novo kwanzas. By 1997 the highest denomination was now 5,000,000 re-adjusted kwanza. In 1999 it had to carry out another currency reform in which the original kwanza was re-introduced with its one unit being exchanged for one million re-adjusted kwanzas
Zaire experienced an inflationary period between 1986 and 1996. In 1988 the highest currency note denomination was 5,000 zaires, which rose to 5,000,000 zaires by 1992. The 1993 currency reform created the new nouveau Zaire, a unit of which was exchanged for 3,000,000 zaires. In 1996 the highest denomination was 1,000,000 new zaires. In 1997, the country was renamed the Democratic Republic of Congo DRC and the currency was changed to francs, one unit of which was exchanged for 100,000 new zaires.
The case of Zimbawe really depicts more graphically how rapidly things can get out of control on the introduction of high value denomination currency notes. On the 5th of May, 2007, Zimbabwe issued currency notes with face values of Z$100million and Z$250 million. On 15 May 2007 a new bank note of Z$500million was issued, followed by the issue on 20th May 2007 of currency notes in denominations of Z$5billion, Z$25 billion, and Z$50 billion. Finally, on 21 July 2007, bank notes with a face value of Z$100 billion were issued. Eventually, Zimbabwe abandoned its own currency and legalised the use of only foreign currencies. Curiously enough already in certain places in Nigeria today the American dollar is the accepted legal tender.
In conclusion the party warned that the introduction of the five thousand Naira currency note may be a step in the wrong direction, and down a slippery slope towards hyper -inflation and that it is time to abandon failed inflation-control policies and inadequately thought- through experiments.