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Redenomination Debate: Soludo And His New Naira By Sani Ibrahim Taura
The August 14th 2007’s outbursts regarding the new denomination of the Naira introduced by Professor Chukwuma Soludo , the Governor of the Central Bank of Nigeria (CBN) is seen by some as a good policy issue aimed at repositioning the Countries ailing economy and strengthening the value of currency - the Naira. But to some discerning observers, this particular policy is a hoax, considering the real situation of the Nigeria economy – presently in tandem with the new administration’s commitments at strategizing its well intended economic policies. The inflationary trend and the positions of the Nation’s economic and financial institutions are cross examined to determine the impact of the redenomination as it relates the economic activity of the Country’s terming populace.
While as the debate rages on, the apex Bank and its policy think tank –Professor Soludo and his team explain that as from 1st of August, 2008, N100 =N1, N500 = N5, N1000 = N10, N1 and 50k coins will be turned into note and 10k, 5k, 2k and 1k coins will be reintroduced into circulation. N20 is expected to be the highest denomination with N1 of Nigeria been at par with of the United State’s dollars exchanging for approximately N1.25k. And this is expected to be a long – term plan aimed at revaluing the currency in the long-run with a multiplier effected on the economy. And this particular presentation is the major challenge aimed to undertake other complementary macroeconomic reforms that will under pin price stability and continue forms confidence in the economy explains the CBN Governor.
According to Soludo, twelve (12) Countries experiment the policy, five succeeded in operating it once and got it right, while three of the remaining. Seven did it twice and the gap between the two occasions ranges from 24 years in the case of Bolivia (1963 - 1987) and 25 years in case of Germany (1923 - 1948). The trial concludes that success achievable may supersede that of failure.
However, our Investigation reveals that the advantage of the redenomination includes: - The cost of currency production of the higher to non – redenominated naira is prohibitive when compared to the /redenomination cost of production. The new coins are expected to reduce pressure on the notes when introduced together in daily transactions. The polymer naira (in the new denomination) reduces wear and tear and minimizes depreciation of the notes as well as reducing the frequency of reprinting the notes which consumes a lot of resources under the old Naira policy; conversion to other currencies would be made easier, tendency for currency substitution would be reversed, higher denomination could be replaced with lower value, distribution and processing of currency would be made easier, the usage of coins payments system what would lay the foundation. for the convertibility of the naira in order to make it “reference currency in Africa and other parts of the globe”.
However, much is yet to be accepted as a convincing evidence of the redenomination by some school or thoughts.
The policy was widely criticized by those who argued that the exchange rate adjustment as the reason behind the redenomination is contentions in their opinion because some developed economies like Japan still exchange their domestic currency at a lower value (100 yen) to the US dollars. China’s currency Is not as strong as dollar while Italian lira exchanges very lowly to the dollar in the international FOREX is not enough reason to buttress the argument in favour of the redenomination. According to the opponents of the redenomination, In contrast to Nigeria- Japan and China have price control mechanisms and the real sector of their economy is productive, with favourable capacity utilization. GDP and other human development index and consumer price indices are all favourable.
Another argument advanced by those opponents the redenomination is the comparative analysis (naira to a dollar). According to them, it is ridiculous to compare Naira to a dollar in an economy that is totally import dependent and monoeconomic. According to this school of thought the “wishful thinking” by those who see naira as equivalents to a dollar is unachievable at least in the short run considering our ailing economy that is totally dependant on oil as a major revenue earner.
We earn in dollar and purchase perishable and manufacturing consumables in dollar for our consumption. This particular episode would not auger well for a comparative Naira to a dollar denomination particularly in an economy that has not yet received a concrete price control mechanism and inflationary pressures is yet to be properly checked. Targets and result are only achievable in the long run and is under probability, according to this school of thought.
Some also argue that, mass awareness will seriously hinder the workability of the currency redenomination mechanism because much of the generality of the public cannot quickly readjust and get acquainted with new conversion notes and coins. This entails slowpace development in acceptability and workability of the new notes and coins and hence slows economic activities on medium term bases. Mass sensitization and awareness campaign will add cost not to talk of time and energy wastages in campaigning for the new denomination.
Infact for those with huge foreign currencies stashed / laundered abroad by those on education, vacation, businesses abroad etc, this particularly policy will not be encouraging and acceptable because they fear losses in conversion or translation and domestic utilization of the converted currencies would be vulnerable to losses in a stagnant economy.
The critics of the redenomination also fanatically argued that to make Nigeria a global financial player is just pretentious as a result of the following reasons:
1. The Country is poor with our fiscal budget in the fiscal year 2007 of N2.2 billion that cannot be compared ‘to the US National Institute for health (NIH) only for the year 2006 ($ 2.7) billion (N351 billion) not to talk of the New York City fiscal year (FY) 2008 ($59 billion). 2. The external reserve status are not sustaintainable enough and cannot guarantee a fourable balance of payment equilibrium. 3. The oil sales is shaky (tumbled by 205%). 4. The Nigeria in Diaspora remittances has edged up exceeding 10% of our GDP to more than $ 93 billion, Nigeria stood to lose such cash infusion and revenue with the redenomination because of the perceived constricted foreign exchange supply. 5. Our domestic fuel needs are only met via imports which are paid in hard currency are heavily subsidized, redenomination will therefore affects internal supply. 6. The CBN is yet to officially peg interbank exchange rates and allow the Naira free fall. This would have tested the Government’s ability to back its foreign currency obligations, solely with the oil proceeds and its foreign reserve. 7. As a Nation wilt a per capital of less than $400 per year, the redenomination, even if implemented now instead of next summer is a not sustainable in the longer term, since the key salient economic variables were not taken into account.
Infact, Peter Alexander Egom-a trained economic who has worked widely on African Economic issues was unapologetically dismissive of the redenomination policy- his contention was that the policy was meant to create an “ever so outward- looking and foreign friendly ever so work shy and rural-shy in Nigeria and ever so ready for the Colonial Monitory manacle of the fixed – rate currency board relationship wilt the imperial but terminally sick US dollar”.
But much of the good from the policies yet to be appreciated by the Federal Government of Nigeria under incumbent Alhaji Umaru Musa Yar’adua as the President. The Federal Civilian Government argue that at least for now, “the economy is not hyper inflationary while commitment at building the real sector of the economy is on, the currency is expected to grow, hence redenomination “surgery” is ill-timed in “a fairly healthy economy” in operation.
The single digit inflation rate, single digit interest rate and the stability of the Naira in the last five years is okay in the Nation’s “fairly healthy” economy assured by Federal Government. The redenomination policy, according to the Government is there fore ill-timed and lacking in due processes.
However, a neutral perspective of view has it that while the due process and the rule of law be maintained at introducing the new policy, the policy cannot go on itself without a merit. This is promised on the belief that with the new denominations, there would be only five notes as against the eight now operational. The cost of three is cut and the lifespan of the remaining five will extend. Since coins are there to replace many of the daily transaction which has to do with the grass roots in petty trading, village markets, butchers, hawkers and small to medium – scaled business men on whose had naira suffers the greatest pressure of squeezing and mutilation.
Furthermore, the redenomination will immensely assists in reducing the inflation rate with the introduction of coins. The more you get to purchase item as little as a chocolate or a candy with smaller coins, the greater your chances of purchasing as little as possible with minimal coins at hand. When the price of butter mint was to rise from 2.50k per one, it makes one unable to purchase a single unit because of the inability of a coin for this purpose. One has to buy two for N5.00. As at now one cannot purchases little sweetness, find and beverages or make little business in small petty trading in consumerable without forfeiting / loosing a large portion of consumer surplus he would have ordinary recouped in other useful purchases. The redenominations will therefore Cushing the above “side effects”. In Agentina, china,Israel and recently Ghana were redenomination was operated with results, psychological parameters play a greater role. Internationally, Nigerian seems psychologically defeated, were for instance an American with N10, 000 will pass for a millionaire in Nigeria. The new pegging may reduce the psychological gap even though the purchasing power differs,
Infact, the brain drain, technological robbery and cross-border criminally and immigration to a more strong economies will immensely reduce if redenomination matches sound economic policy.
We therefore agree that the policy be opened to debate and due process by employed by the CBN in order to make the new initiative workable. Opening the issue to public scrutiny will make the creativity to be well understood and the issues are subjected to proper evaluation, monitoring for effective workability or sustainability.
SANI IBRAHIM TAURA, AN ACCOUNTANT WROTE IN FROM DUTSE, JIGAWA STATE |