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In our article of  7/3/2005, titled “HOW THE N1000 NOTE WILL AFFECT YOUR POCKET”, we evaluated the merits and demerits of high currency denominations, and concluded that a combination of an expanding cash surfeit and inflation are the major responsible factors for the issuance of higher and higher currency denominations, which command less and less values!  In other words, resort to higher currency denominations above the 100 unit secondary note is generally a symptom of the failure of the management of a country’s economic and monetary policy and the resulting fall in currency value will inevitably make redundant the use of primary units of coins in that country’s currency profile!  So it was with our sister country, Ghana, where C5,000, C10,000 and C20,000 notes were issued to facilitate the carriage of huge volumes of cash with relatively little value!  (Note: C10,000 = N130 = $1).  As you can imagine, if C20,000 is equivalent to only US$2, sooner than later, the Ghanaian authorities would have had to issue one million cedi notes if they wanted a single note value equivalent of say the US$100 in their currency profile and there can be no role for worthless primary pesewa (Ghana’s kobo) coins in such a system, as 1pesewa = $0.000001 (a millionth part of a dollar)! 

The same need for portability of a badly depreciated naira led to the introduction of the N50, N100, N200, N500 and N1,000 notes in Nigeria in the last 20 years!  However, in the event that our highest currency denomination, the N1,000 note, is the equivalent of only about US$8, it is not inconceivable that we may require a N10,000 note if we wish to improve portability and facilitate cash transactions with higher value currency denominations.  As in the case of Ghana, it is not difficult to see why primary kobo coins disappeared from circulation in Nigeria; our 1kobo=US$0.008 i.e. (less than 100^th of a cent)! It is virtually impossible to find a product sold for N1 in Nigeria today!

However, the downside of such a currency profile is the inherent inflationary push that comes with the prevalence of high denominations.  The N1 and N2 notes are hardly seen any more, and the N5 and N10 notes, where found, are repulsive to customers because of their dirty, moist and unhygienic physical condition!  Inevitably, manufacturers, traders, petrol pump attendants, etc, succumbed to the adoption of N5 or N10 denominations as the minimum cost of their products, and consumer goods and transactions were priced with a minimum value of N10, as change would not be available for commodities priced for less!  The inflationary spiral and wasted value inherent, everyday, in millions of transactions where values were rounded off to the nearest N10 must be mindboggling!

So, the reintroduction of the N1 and N2 and the 50kobo coins by the Central Bank must certainly be a very welcome development for manufacturers, traders and consumers alike, and their availability would be expected to dampen the upward price push, which the absence of these denominations brought about.  Thus, prices can be expected to be more competitive and the often forgone change at petrol stations and other consumer mass markets can now be recovered and the usual attrition related to such transactions in the past will be avoided with positive impact on the health disposition of more and more Nigerians!

However, the question that will agitate the minds of Nigerians is whether or not the new currency denominations will work this magic, and how eagerly the new denominations will be adopted for facilitating the settlement of transactions.  Can we truly expect consumer price structures to change favourably with the reintroduction of these coins?  Certainly, the three sets of coins, 50k, N1 and N2 will be more hardwearing than the extinct note equivalents and will therefore successfully endure the indignities that made the erstwhile notes unattractive and unhygienic to hold.  The CBN has indicated that 2% of all currencies supplied to any bank will be in the form of coins, so as to guarantee availability in the market at all times (Guardian of 23/2/07, pg 15), how long this liberal coin policy can be sustained is another matter!  You see, the coins are made from semi precious metals such as copper, nickel and bronze alloys, and the cost of production of each coin is probably many times over the face value of the currency; this is not surprising really as N1 for example, is 130^th part of $1 or better still, less than one US cent having depreciated from N1=$1 over the years.  The economic wisdom in coin production is in the long lifespan of coins (coins can last over 50 years usage!)  The relatively high initial production cost can be amortized profitably over its lifespan, but that is assuming that the coins are available and remain in use.

If, however, the coins disappear or receive the undue patronage of makers of jewelry, gift items, modern art, etc, both at home and abroad, the lifespan of the coins will have been truncated on the altar of commercialism, and our CBN may unwittingly end up funding or indirectly subsidizing the cost of finished products made from Nigerian coins which have been melted and recycled!  If this scenario becomes reality, then, the new currency profile, including coins may die a premature death and our expectation of a damper on inflation or the facilitation of change for consumer purchases may become unrealized; meanwhile, Nigerians would have wasted the economic cost of production (running into billions of naira) and the additional cost of promoting the acceptance of the new currencies!

From the above, it is clear that the simple act of reintroduction of these coins may not on its own favourably affect the pricing structure, the major militating factor against this expectation is the purchasing power or what product value can be exchanged for say the 50k, N1, and N2 coins!  This fact has recently been recognized by our neighbours in Ghana, who will, as from July this year, (2007) redenominate their currencies in order to give the lower primary denomination units more value and encourage their adoption. Ghana’s Central Bank is knocking four zeros off the currency denominations now in circulation; thus, the C10,000 note which had fallen in value over the years to become equal to US$1 becomes C1=$1 as from July 2007!  In this manner, 1 pesewa (like kobo denomination) will become equal to US 1 cent in place of Nigeria’s own N1=US$0.008 while our 1 kobo is much less than 100^th of a US cent!  If our own CBN puts pride aside and borrows the common sense approach adopted by our Ghanaian brothers, the reintroduction of the new coins will become easily adopted even without any encouragement from the authorities and their inherent monetary value would work against their meltdown and recycling by hustlers and the desired objectives in reintroducing these units of currency will be achieved and succour will come the way of the masses!

XXThis article was first published on 26/2/2007!  Low value naira also poses severe challenges for the successful operation of ATM machines nationwide!  Meanwhile, the perpetrators of the costly waste of our resources enjoy immunity with impunity!XX