Note Of Contention

The Central Bank of Nigeria’s (CBN) recent proposal to introduce new N5,000 notes into circulation and its plans to convert some of the existing lower denomination notes into coins early next year, have not gone down well with Nigerians who fear the policy will not only lead to inflation but will also worsen corruption. Frederick Mordi, who has been monitoring the situation, has the details.

Ever since he became governor of the Central Bank of Nigeria (CBN) in June 2009, Mallam Lamido Sanusi has been in the eye of the storm. His financial sector reform programmes have been admired universally but they have ruffled the feathers of many local bigwigs. Sanusi is committed to change; to push the Nigerian financial sector into the global mainstream, but in a country still dominated by entrenched interests, change is often seem as threatening. Some have openly called him a ‘dictator’.

For instance, when he announced a new tenure for bank chiefs in the country in January 2010, shortly after he sacked eight bank CEOs over corporate governance issues, not a few condemned the retroactive policy that has seen the exit of three bank CEOs. They include the founder of Zenith Bank, Jim Ovia; Group Managing Director/CEO of United Bank for Africa (UBA), Tony Elumelu; and GMD/CEO, Skye Bank, Akinsola Akinfemiwa. The GMD/CEO of Access Bank, Aigboje Aig-Imokhuede, is expected to retire before the end of the year as a result of this policy making it mandatory for bank chiefs in the country to quit after 10 years in office.

Not done yet, in April this year, the indomitable Sanusi stoked the flames of controversy again when he launched the pilot phase of what he termed a ‘cash-lite’ economy, in Lagos, Nigeria’s commercial capital. He pegged the minimum limit for daily cash transactions at N150,000 (about $1,000) for individuals and N1m ($6,250) for corporates, to discourage, as he puts it, excessive use of physical cash in the system. Following intense pressure from stakeholders, he reviewed the figure upwards to N500,000 ($3,125) and N5m ($31,250) respectively. There are indications that further a review will not be long in coming.

Stirring the hornet’s nest?

Sanusi stirred the hornet’s nest again when he announced a new policy for the naira, the Nigerian currency. According to Sanusi, from early next year, the N5, N10 and N20 notes would be converted to coins, while a new N5,000 note (about $30) would come into circulation. (N1,000 note is currently the highest denomination in the country).

The proposed N5,000 bill will bear the images of three female Nigerian nationalists: Margaret Expo, Funmilayo Kuti and Gambo Sawaba. The current N50, N100, N200, and N500 notes will be redesigned with new security features. At the end of the exercise, the Nigerian currency structure will consist of six coins (50k, N1, N2, N5, N10 and N20) and six banknote denominations (N50, N100, N200, N500, N1,000 and N5,000). But opponents of the policy believe the conversion of the lower demonination notes into coins could belittle the contributions of nationalists such as Tafawa Balewa, Alvan Ikoku and Murtala Muhammed, whose images adorn the notes and that the new note could cause inflation.

Sanusi said President Goodluck Jonathan had approved the plan last December, insisting that there is nothing unusual in having a N5,000 note as some developed countries that have even higher bills units have not experienced inflation as a result of this.

He confirmed that CBN had indeed carried out a comprehensive review of the existing currency structure before it came up with the new policy. He expressed the confidence that public apathy towards the usage of coins would be addressed with adequate enlightenment, which he said the apex bank would embark on shortly. The introduction of N5,000 bill would complement the bank’s cashless policy as it would substantially reduce the volume of currency in circulation, in the long term.

Also reacting to criticisms that have trailed the proposal, the CBN, in a statement signed by its Director of Corporate Communications, Ugo Okoroafor, expressed regrets over what he termed ‘malicious representations, regarding its currency review and restructuring programme”. Describing the allegation that the CBN would spend N40bn ($2.5m) on the proposed exercise as patently false, Okoroafor said currency review is done by all countries at a recommended interval of about eight years.

He added: “In Nigeria’s case, this will be the first comprehensive review in 13 years and it will be used to take advantage of latest technology. It will improve the currency’s security features and keep it ahead of counterfeiters.”

Okoroafor, who also noted that the Nigerian currency will feature female personalities for the first time, said that the proposed currency notes will be introduced in phases. Justifying the need for the exercise, he said the rate at which the existing currency notes are rendered unfit through usage is quite high. ‘Project Cure,’ he pointed out, will reduce the frequency of replacement and ultimately the overall cost of currency management. On the touchy issue of inflation, he said that currency restructuring does not cause inflation in any form whatsoever as it will not increase money supply. Instead, currency restructuring will make payments easier and check unnecessary rise in prices that come through the practice of rounding up.

“The experience in Nigeria and other jurisdictions,” he said, “suggests that currency restructuring may actually help in tackling inflation. For instance, when CBN introduced the N500 banknote in 2002, inflation dropped from 16.5% to 12.1% in 2003. Similarly when the N1,000 banknote was introduced in 2005, the inflation rate actually dropped from 11.6% to 8.6% in 2006 and further dropped to 6.6% in 2007.”

Minister of Planning, Shamsudeen Usman, who also toed the same line of argument at a media parley in Abuja shortly after the policy was announced, dismissed insinuations that the proposed N5,000 note contradicts the CBN cashless policy.

He said: “The higher denominations are there to create higher value. They will not be in the widest of circulation. What is important is that there is no link between it and inflation.”

While Sanusi also enjoyed the endorsement of President Jonathan’s Economic Management Team comprising top business men in the country, other stakeholders including some members of parliament, clerics, political parties, professional bodies, and even the ordinary Nigerian, are not so convinced. They insist it will cause inflation, going by previous experience. Another argument put forward by those against the N5,000 note is that it will fuel corruption on a massive scale as it will become easier to carry high volume of money in a small space.

But those in support of the policy believe coins in circulation will stop the habit of rounding off prices to the nearest whole number and ultimately checkmate inflation. For instance, after the last restructuring exercise in 2007, when N5 became the lowest note denomination in the country, the price of the cheapest commodity in the market automatically became N5. This is so because Nigerians do not accept coins in transactions. There are fears that the same thing will happen when N50 becomes the lowest note denomination.

Opposition mounts

Due to these fears, which are not altogether groundless, one of the leading opposition parties in the country, the Action Congress of Nigeria (ACN) have enjoined Sanusi to shelve the policy in the interest of the common man.

In a statement signed by its National Publicity Secretary, Alhaji Lai Mohammed, ACN warned: “The unintended consequences and collateral damage of introducing the N5,000 may far outweigh the benefits of the new measure. 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.”

The party said Nigeria should learn from the bitter experiences of countries that introduced higher denominations, citing Zimbabwe as a classic example. The Senate Committee on Banking, Currency and other Financial Institutions, which also berated the CBN’s proposal, demanded a suspension of the plan until all the grey areas are addressed.

The committee’s chairman, Senator Bassey Otu, who made the lawmakers’ position known in Abuja, said: “I believe that a project of this nature requires parliamentary approval because it has fiscal implications on the economy.”

The Institute of Chartered Accountants of Nigeria (ICAN) believes the introduction of N5,000 note may change the pricing structure of products in the market, and render the N5, N10, N20 and N50 notes and even the proposed new coins, extinct.

In a statement by its President, Adedoyin Owolabi, ICAN said: “The extinction of these smaller denominations will negatively impact the buying capacity and habits of low-income earners and the poor as goods and services will be priced above their levels.”

The Nigerian Bar Association (NBA) has threatened to take the CBN to court if it goes ahead with the implementation of the new policy. Opposition keeps swelling by the day.

Sanusi’s predecessor Prof Chukwuma Soludo also carried out wide-ranging reforms in the banking sector, which included trimming of the then unwieldy 89 banks into more manageable 25 banks, as well as a requirement for the banks to increase their minimum capitalisation base from the existing N2bn (about $12m) to N25bn ($156m). However, Soludo’s controversial naira re-denomination policy, designed to strengthen the value of the local currency in 2007, fell through following massive public outcry, which led the former President Umaru Yar’Adua to suspend its implementation. The policy sought to remove two digits from current naira denominations. Unlike Soludo, Sanusi seems to have a knack for having his way.