Last week, the Governor of the Central Bank of Nigeria (CBN), Professor Chukwuma Soludo, rattled Nigerians in a way they have not been rattled in a very long time. The steely but ever smiling champion of consolidation in the banking industry hit Nigeria with news that will have far greater impact on the people and the Nigerian economy than the recent bank consolidation programme, which had also generated so much flaks and accolades, when it was first mooted in July 2004.

The latest Soludo interjection involves a re-denomination of the naira to restore its value “close to what it was in 1985 before the commencement of the Structural Adjustment Programme in 1986.”

This will involve the introduction of a new currency structure with N20 as the highest denomination. The restructuring will see the current N1000 notes become N10, N500 becomes N5 and N100 becomes N1, through a shift of the decimal point two places to the left to eliminate two zeros. By the re-denomination, a person on a salary of N30,000 today will from August 2008, the effective date of the policy, go home with N300 which, hopefully, will have the same value with the N30,000 he is presently earning. N1.25 of the new naira denomination will exchange for 1 dollar, up from the current N125 to one dollar.

The re-denomination of the currency is expected to reduce the cost of production, distribution and processing of currency in Nigeria, promote usage of coins and lay the foundation for the easy convertibility of the naira to other currencies.

In essence, the idea is to strength the naira to make it the currency of choice for the proposed singe currency for West Africa as envisioned by the Economic Community of West African State (ECOWAS) The intervention will also involve the sharing of part of the Federal Account Allocation in US dollars to deepen the forex market and for liquidition management, from September 2007.

As could be expected, the planned re-denomination of the naira was received like an earthquake in the country. Even the Federal Government and the Federal Executive Council gave the impression that it had no idea or confidence in the planned re-denomination of the naira with the quick announcement of a government team to study and finetune the details of the initiative.

From different parts of the country, commendations and condemnations have been streaming out, from economists and market women alike.

While the Action Congress (AC) has called for the sack of Soludo and other notable economists have questioned the CBN initiative, chiefly because they believe the value of the currency of a country cannot be increased by fiat when there has been no increase in production, others have expressed confidence in the ability of the initiative to restore value and confidence in the naira.

As strange as the idea of the re-denomination of the naira seemed to many Nigerians when it was first announced last week, emerging facts indicate that it is not as outlandish as the people had thought. It is an option that has been used in many countries, including close by Ghana which now has its cedis valued at about 97 cents.

It behooves the nation therefore not to attack Soludo’s grand dreams for the naira but patiently wait for the Central Bank to enunciate the modus operandi with which it hopes to make the policy work in Nigeria before positions are taken on the matter.

One issue which the CBN will also have to take into cognizance is the peculiarity of the Nigerian economy and Nigerians themselves. The CBN can expect to have a hard time and spend a lot of money to get the message of this development down to the grassroots in every part of the country.
Again, if the change of the current N100 to N1 is easy to effect in the formal sectors like the banks, in the Stock Exchange and with regard to salaries of people in paid employment, it will be interesting to see how the reduction in prices of foodstuffs and other commodities will be enforced, by exactly the same margin, in the open market.

In essence, when the salary of a person on N30,000 now becomes N300 after August 2008, how does the government hope to ensure that the cost of a piece of meat in the roadside bukateria, now sold at N50, goes down to 50 kobo and not N1? Or that a landlord reduces the rent of his house, accordingly? Let us also consider the scenario of a worker who had expected to collect N10 million as his gratuity on disengagement from service next year now to be paid N100,000. How effectively can the CBN ensure that the N100,000 to be collected by that retiree will be able to buy what he could have bought with the old N10 million?

These examples aptly capture the tricky nature of the new Soludo gamble. It is a gamble that could pay off beautifully, with a stronger naira that could be the single currency for the entire West African zone. On the other hand, it could lead to a crisis, a scenario that will take many Nigerians, including the hypothetical retiree, down with it.

Ordinarily, one would have expected that the CBN will be guided by the widely acknowledged view that the strength of a currency is determined by the strength of the economy, its productive capacity, infrastructure, security of lives and property, employment, good governance, and strict adherence to the rule of law which enhance higher local productivity and increased capital inflow through greater foreign investments and exports.

But I believe Soludo, the dreamer, must have his facts right and is ready to stake his name, his career and his future on this lifetime gamble. Instead of the discordant tunes coming from different parts of the country, the way to go, I believe, is for the government and our economists to clinically study this agenda and determine whether it is the best for the nation or not.

If the naira is to go the Soludo way, efforts must be made to ensure that the people, in every nook and cranny of the country, are educated on the how the reforms will be effected and the gains to us as a country, to induce the cooperation of all.

The impression that is being created that the Federal Government and the Federal Executive Council are divided on this matter, or that the Finance Minister, himself, until recently a Deputy Governor of the CBN, is against it, will not help matters. All hands have to be on deck so that the entire country is mobilized to make the new re-structuring work.

One other area, however, for which Soludo owes the nation an explanation is the restructuring of the naira and the introduction of new notes and coins, at great cost to the country, just a few months ago, only for this proposal for the notes and coins to be withdrawn for replacement with new ones next year? What exactly is responsible for this? Is it a case of policy fatigue or is the impending re-denomination just another brainwave that could be abandoned mid-stream again? Answers to these questions will go a long way in winning the support of Nigerians for this novel re-denomination exercise.

Beyond the outcry over the re-denomination, however, is the need to salute the vision of Soludo and the courage which he has brought to bear on his decisions as CBN governor. The planned re-denomination of the naira is an audacious step that should be fully supported, once our financial experts have taken their time to study it and are agreed that it is the best way forward for Nigeria.

Whichever way the nation goes, it is imperative to commend the CBN governor for his ability to think out of the box. It is thinking and courage such as this that move societies forward.