Posted by Daily Trust (Abuja), By Anas A. Galadima on
The quantity of Naira notes that Nigerians must carry in their pockets to pay for simple transactions is set to crash next year when a 100 naira note is redenominated to one naira under a plan unveiled by the Central Bank of Nigeria [CBN] yesterday.
The quantity of Naira notes that Nigerians must carry in their pockets to pay for simple transactions is set to crash next year when a 100 naira note is redenominated to one naira under a plan unveiled by the Central Bank of Nigeria [CBN] yesterday.
The apex bank said two zeros will be removed from the value of each existing currency denomination, so that N1000 becomes N10 while the value of the current N500 note will plummet to N5.
Speaking at a ceremony in Abuja to unveil what CBN called "The new strategic focus on the Naira", its Governor Prof Charles Chukwuma Soludo said this act would restore the value of the naira close to what it was in the early 1980's.
He said with the new policy, which takes effect from August 1, next year, the naira's value to a dollar would change to N1.25k, as against the current exchange rate of N125 to the dollar.
Soludo said, "We intend to restructure the entire currency by dropping two zeroes or moving two decimal points to the left from the currency, and issuing more coin denominations. This would entail a total currency exchange and phasing-out of all the existing denominations from August 1, 2008. Effectively, at the current exchange rate, this policy would mean that the Naira to US dollar exchange rate would be around Nl.25 to US$1 then. All Naira assets, prices and contracts will be re-denominated by dropping two zeroes or two decimal points to the left with effect from this date."
He said with the currency reform, the N1000, N500, N200, N100, and N50 notes would all be phased out and the N20 would be the highest paper denomination. "Effectively, our plan will restore the value of the Naira (in the short-term) close to what it was in 1985, before the commencement of the Structural Adjustment Programme (SAP) in 1986," he said. "Re-denomination and re-introduction of totally new currency structure (notes and coins) following the progress so far with other reforms and the enabling conditions in the economy today are designed to better anchor inflationary expectations, strengthen public confidence in the Naira, make for easier conversion to other currencies, reverse tendency for currency substitution, eliminate higher denomination notes with lower value, reduce the cost of production, distribution and processing of currency, promote the usage of coins and thus a more efficient pricing and payments system, and lay the foundation for the convertibility of the Naira as well as make it the 'Reference currency' in Africa," Soludo also said.
Under the new currency structure, naira notes will only come in 50 kobo, 1 Naira, 5 Naira, 10 Naira and 20 Naira denominations, while the coins would come in 1 kobo, 2 kobo, 5 kobo, 10 kobo and 20 kobo denominations.
The CBN chief said the new policy, which is also part of the financial sector reforms, will make the naira the currency of choice in Africa, and that great efforts would be made at ensuring the stability of the naira and making sure that it integrates globally with other major currencies of the world. He said three measures would be taken to ensure that the currency redenomination is effective. They are, adoption of a policy to focus greatly on minimising inflation in the country, sharing of part of the country's Federation Account Allocation to the federal and state governments in dollars; as well as "Current Account Liberalization/Convertibility and Accession to Article VIII of the IMP."
Under the first measure, the bank would ensure as a matter of priority that inflation was minimised so that the value of the naira remains stable. "The CBN will adopt inflation target as the nominal anchor for monetary policy with effect from January 1, 2009. Low and stable inflation will be our monetary policy's primary long term goal." The second measure, he said, entails distributing part of the country's federation account allocation to the federal government and the states in dollars as a way of controlling excess liquidity which can often cause inflation. The third measure, on the other hand, will be liberalisation of current accounts: "This would entail that Nigeria eliminates all restrictions on current account transactions, and accession to Article VIII of the IMP means that the policy is not easily reversible," he said.
According to Soludo, the currency reform is not a strange occurrence in the world as many countries have done it in the past while others are currently doing it. "Several countries in the world have undertaken currency re-denomination at various times and for different reasons, including: Afghanistan (2002); Germany (1923, 1948); Argentina (1970; 1983; 1985; 1992); Bolivia (1963, 1987); Brazil (1967, 1970, 1986, 1989, 1990, 1993, 1994); China (1955); South Korea (1962); Mexico (1993, 1996); Ghana (2007); Israel (1948, 1960, 1980, 1985); Turkey (2005); Angola (1995, 1999); and others," he said.
"Evidently, many countries have had to undertake the re-denomination more than once. In the case of Brazil, it had to do it many times before it got it right. The major challenge is to undertake other complementary reforms, particularly macroeconomic reforms that will underpin price stability and continuing confidence in the economy," he added.
Soludo said the move has become necessary because "The African Union has granted Nigeria the right to host the Headquarters of the African Central Bank when the common currency in Africa materialises. We must therefore lead the way in terms of properly aligned currency structure and sound monetary policy framework."