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Currency Restructuring: The Bitter Honey

Currency Restructuring: The Bitter Honey

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Published by Ààrẹ Àgò
Owing to the ongoing disceptation on the currency restructuring in Nigeria, I engaged people in different fields, sectors and industries. This document hence contains my opinion on the issue having gathered more information than i had when the issue first exuded
Owing to the ongoing disceptation on the currency restructuring in Nigeria, I engaged people in different fields, sectors and industries. This document hence contains my opinion on the issue having gathered more information than i had when the issue first exuded

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Published by: Ààrẹ Àgò on Sep 09, 2012
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06/27/2014

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Currency Restructuring: The Bitter Honey
 
Just as he was birthed into national limelight with waters of controversy, Mallam Sanusi LamidoSanusi, Governor, Central Bank of Nigeria, has continued to attract public criticism in recent timesbecause of his statements, policies and ideas. Formerly adjudged the undisputed hero of the masses
with what many tagged “Hurricane Sanusi” that purportedly cleansed the Nigeria Banking industry of 
 its rots. In less than 3 months at the helm of affairs at the apex bank, the Dan Majen Kano, had madeNigeria a global focal point for banking revolution. Apart from the array of invitations that greeted
him from international communities to narrate the “Success Story” of Nigeria’s banking industry,
Sanusi was adorned with many global and local awards. In a very short time, he was ranked amongstthe 100 most influential people in the world (by TIME Magazine in 2011).
Unfortunately, his “muddy” role in the
oil subsidy saga that almost crumbled the economy in early
2012 seemed to portray the Mallam as “deceitful” in his earlier crusades that “seemed” to have
protected the masses against gambling aristocrats, monopolistic capitalists and oppressive bankers,w
ho had cornered depositors’ funds in their personal loot
-bags. At that moment, it was the
Governor’s words against the masses’; and his credibility as a trustworthy administrator began to
dwindle . Just as fast as he rose to prominence, he lost his popularity (at least amongst the people).He was, also, quickly adorned with many derogatory remarks:
a northern-agenda crooner, animperialist,
 
an economic goon, a political stooge, and worse off, a deluded tribalist.
One can saytherefore that Sanusi is one of the most controversial Governors of the Central Bank of Nigeria has
had; especially with his latest stint to restructure the Nigerian currencies without “due”
consultation.
 
By way of retribution borne of righteous indignation to the sudden pronouncement, the media hasbeen awash with public opinions countering the positions of the Governor. Nigerians from all walksof life, at home and in diaspora, have now decked their economist caps, juxtaposing theories (andhypotheses) against historical events. Everyone is trying to dent the position of Sanusi to prove thatthis journey of currency restructuring will lead to nowhere but further economic declension. While itis a general consensus that the health of the Nigeria economy needs saving, the opinion that theoption chosen by Sanusi is draconian, unskilled, rash, unscrupulously purblind and belies corruptintentions is overarching. In fact, it is to this end that the CDHR has called upon the FederalGovernment to unceremoniously sack the Governor.Although a random sampling of opinions on social networking sites does not suggest any civildisobedience/unrest, it is imperative that this issue be nipped in the bud before it gets out of hand.Nigerians want and truly deserve answers to the worrisome questions raised on inflation, pricestability, corruption, cashless economy, and behavioural disposition towards using coins. And the
CBN as the statutory body in charge of the economy should provide “absolute” explanations on
these issues (with empirical facts). There is, therefore, a need for an educated consensus to bereached between the proponents of Currency Structuring and its antagonists through a nationaldiscourse before this monetary policy bolus is forced down our narrow economic throats. Nauseatedby the unanticipated effects, we might be forced to vomit everything, including other economiclozenges.
 
Hence, it will not be inapposite to dwell on the issues raised by Nigerians while we are waiting forthat national discourse to happen and hoping that our positions ever get strong enough to get ourleaders to objectively engage us (without their arrogant robes on) at a roundtable feasting on thepros and cons. We are citizens. And for whatever policy that will affect the lot of the masses (ourlives), there is also always that need by the policy makers, even if it is feigned, to consider publicopinions (no matter how foolish they might sound) before sealing the bargain.The negative disposition of many in this lingering disceptation except for those with veritableknowledge that will have to feed us with some economic diets, is largely borne out of thebounderish rendition of the news. And like many Nigerians, although I have not entirely seen thedamage this policy will do to the economy if 
 ALL
 
CONTROLS
needed for it to deliver the envisagedbenefits are properly anchored, I abhor the manner by which I received the news. It was a rudeshock. And it was (more than) natural for anyone to want to vociferously refuse the positions of theGovernor even if there are no grave reasons to do so. On the contrary, having sampled varyingopinions, mined a few facts and engaged in numerous discussions, I find this topic fit for publicrendition and discourse.What is this concept of Currency Restructuring as expressed by the CBN? What economic menace isit meant to address? Does it belie any ulterior motives as insinuated by many? What are the directimplications on the economy vis-à-vis potential hyper-inflation, unemployment, corruption in low &high places, and uncurtailed government borrowing/spending? Are there no better alternatives?Why now?Let me quickly and expressly mention that I am not an economist. And while this might underminethe face value of my submissions, like many lay and learned individuals who are not economicexperts, I reserve the rights to my opinions; especially drawing on a relatively informed backgroundborne out of inquiries.
What is Currency Restructuring?
Conceptually, Currency Restructuring is concerned with an overhaul of all or some of theconstituents that define a countries legal tender. This exercise usually includes, but not limited to,currency redesigning. In some cases, re-evaluating the amount of lower denomination units thatmake up a unit of the higher bill is the crux of currency restructuring. For example, if instead of ahundred kobo, one naira is re-evaluated to amount to one hundred and twenty kobo, then the Nairawould have been restructured vis-à-vis the Kobo. This does not have to necessarily mean revaluationor devaluation of the Naira.
(Complex? I said the same thing
 
 )
 The number of coin and note currencies that exist in a given economy also defines the currencystructure of that economy. And any attempt to change the number of the currency types willtranslate to currency restructuring. The introduction of new currency denominations, whether incoins or notes, is also an activity of currency restructuring. It is basically a broad concept that availsthe implementer the opportunity to choose from a spectrum of options.In thi
s context and based on the available news reports, the CBN’s proposed currency restructuring
exercise will be purportedly centred around the most basic options available in the lot:1.
 
Coining the lower Naira denominations (N5, N10 and N20); and
 
2.
 
Introducing a new currency denomination
 –
the N5, 000 bill.
How often should this exercise be carried out in an economy?
In this era of “global best practises”, although I am hardly swayed by the sentiments, this exercise is
encouraged to be carried out within 5 to 8 years of any currency regime. The purpose for thisperiodic review, economists claim, is majorly to address the economic menace of counterfeiting andlaundering.Thinking about the aggravated level of criminally corrupt practises in Nigeria today, where rumours,in fact, have it that some highly connected individuals mint money and have them stashed away insecret bunkers for many years, the argument above cuts the need for an
immediate
currencyrestructuring for me. And I will not be surprised to hear some of the so-
called “highly connectedindividuals”, who will now be faced with the challenge of disposing of their launders, cry foul and
want to strike Sanusi below the belt (and maybe on the head).
 Alternatively, I opine that the introduction of expiring number series might curb this criminally 
excesses. If you are conversant with the terms “Old and new dollars”, you will appreciate how 
expiring number series helps to discourage the stashing of currencies for over a period of time. Wenecessarily do not have to redesign every 5 to 8 years. If introduced, money in their batches will seize to be legally tenable as year passes.
I actually think it is not economically wise and safe to redesign currencies every 5 to 8 years. I standto be educated properly on this however. For currencies that have reached a level of globalacceptance, I do not think this is a wise option. And the question here for me will be whether theCBN ever has plans to strengthen and promote the Naira to that scale of global acceptance.Historical facts said it was globally accepted in other economies in the 70s and the very early 80s asmeans of payment.
Will it cause Inflation?
The first impact that comes to mind is Inflation
 –
a general and progressive increase in the prices of goods, commodities and services. Although there are no economic theories that suggest that pricesincrease strictly because of currency restructuring (as in the present context), people believe so -drawing from past experiences. It will, therefore, be unfortunate if this conception of the people istrue and no Nigerian academic had put forth a thesis based on empirical evidences to substantiatethis position and in essence, change the orientation of Global Economics.Unfortunately, the lack of verifiable evidences on how the introduction of high currencydenominations causes inflation waters down this public opinion. Despite the fact that many notableNigerians, including a former Head of State and President, had expressed fears in this regard, theyhave refused to provide the analysis that depicts that prices rise because of the introduction of ahigh currency bill. It is easy to draw from historical memory archives. They are strictly not verifiableas people have differing narrations about the happenstance.So I hope it will be safe to conclude that the introduction of high denomination currencies does notcause inflation (in an absolute sense). But the lack of necessary control measures after thesecurrencies were introduced do. For example, if the appetite of the public to acquire the high

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