On hoarding, the currency of preference for Nigerians is Dollars, not Naira. Over $10 billion is under their mattresses; the equivalent of N7.5 trillion, nearly three times the N2.7 trillion “cash-on-hand” about which the CBN is peeved. Crypto is trending too within the “hoarding ecosphere”. Nigeria was no. 7 on the Global Crypto Adoption Index six months ago until China, Russia and two others displaced it four notches down to no. 11 currently. The most uptick in the black-market rate since the announcement is 7% and is partly driven by cross-border activities given the Naira reaches across the subregion which underscores the absence of industrial-scale Naira hoarding.
Ironically, Dollar hoarding, or better still currency substitution, is fueled, in part, by the CBN through their directive to banks to pay Dollars on Western Union’s inbound remittances and their exchange rate policy. The 85/15 ratio between the public cash holding and banks’ vaults is really a natural distribution because of the 42 million unbanked Nigerians, the 30 million underbanked, and even the banked plus the gap in electronic payment penetration. Any attempt to alter this ratio would decelerate the velocity of cash transactions and affect gross output. e-Naira has only onboarded 1 million users since its inception 12 months ago so near-full-scale electronic payment penetration is still a long way off.
The aggregate money supply is N49 trillion and the N2.7 trillion or 5.5% poses no significant macro threat. Thus, the rationale advanced for the reissue is beyond hyperbole and not rooted in reality, unfortunately. The Naira notes will still get filthy, the ransom will still be paid in Naira, if scarce, kidnapers will resort to Dollars or crypto, the public/banks cash ratio will revert to 85/15 after a few iterations if any, the 5 to 8 years as the standard frequency of currency reissue is a farce, counterfeiting will go on unabated, (ask the Indians), in short, the cock will still crow at dawn.
But this is where the rubber meets the road; the Cost of design and printing;
1,000,000,000 of N1,000 notes @ 15 cents. = $150,000,000
2,000,000,000 of N500 notes @ 15 cents. = $300,000,000
5,000,000,000 of N200 notes at @15 cents. = $750,000,000
Total $1.2 billion. Add the cost of logistics for 8 billion notes and there is no tangible benefit to justify this cost. History may be repeating itself. After the 1984 currency reissue, the Naira ceased to be a tradable currency globally. With this reissue, it might cease to be a tradable currency in West Africa which could further diminish the country’s geopolitical relevance even in its own backyard. Fact; 70% of $100 bills are outside the US and that’s an excellent geopolitical asset for them. Counterintuitiveness seems to be coded into the DNA of the CBN since 2003.
On August 14, 2007, they announced the Strategic Agenda for the Naira; a $1 billion redenomination project of the currency. They drew from the experience of Angola, Turkey, Ghana etc. to rationalize their case. However, a brief investigation would reveal that Angola redenominated their currency because it had a war-time inflation rate of over 4,125% and Turkey because its Lira exchanged at 1,500,890 to the Dollar. Compared to these macro variables, Nigeria was ten parallel universes apart given its exchange rate of N125 and an inflation rate of 9%. The closest currency at parity to the Naira then was the Yen at 121 to the Dollar. Japan didn’t redenominate even when the Yen was at 374 Yen back in 1973. South Korean WON at the time was 980, they too didn’t redenominate. So why Nigeria?
But Soludo, with his gift of gab and having successfully restructured the banks, captivated his audience in rhetorical flourishes during that press briefing to deliver a subject he had no business engaging in. He met his waterloo when he foisted the autonomy of the CBN over the need for consultation with President Yar’Adua who was still trying to get his feet wet. The President gave him one dirty look and never renewed his employment contract thus saving the country from a cataclysmic mess.
In 2014, this same CBN issued a stunner in their Guideline on International Money Transfer Services. Capitalization requirement for Nigerian companies was 40 times more than foreign entities, N2 billion vs N50 million, (no, I’m not making this up) effectively foreclosing the prospects of indigenous entrepreneurship in the burgeoning global remittances market that was trending towards $1 trillion yearly.
The objectives of the current reissue highlighted by the CBN are clearly misguided and unnecessary and if some sense of rational intuitiveness could prevail, this project will be aborted to save the country the $1.2 billion cost.
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