Restructuring the Naira
Thursday April 20, 2006

The Central Bank of Nigeria (CBN) has made known its plans to phase out the current naira notes by the end of this year. CBN Governor, Charles Soludo, last week, announced a new measure to re-design and re-issue N50, N20, N10, and N5 notes, while also speaking of measures to bring back the coins in 50 kobo and one naira, and the introduction of the N2 coin into the payment system. The bank proposes to introduce vanishing technology to double the life span of the notes, and reduce production cost by 50 per cent, while aiming at the policy objective of clean notes at all times.

The move hardly comes as a surprise, taken in the context of the CBN Governor’s declared 13-point agenda to reform the banking, albeit payment system, comprehensively. Beyond mere issues of altering the faces of the denominations or introducing new coins, we certainly welcome initiatives designed to improve the status of the national currency, generally. Without gainsay, those who call for new thinking in design and technology to reflect our peculiarities in handling currencies merely acknowledge the pervasive abuse of the naira by the citizens.

What is doubtful is whether any new technology can withstand the nature of the abuse inflicted on the naira, in the absence of fundamental attitudinal changes in matters of how Nigerians handle their currency. Stepping up the campaigns against naira abuse should necessarily go with the planned restructuring.

The new measure also attempts to confront the problem of disappearance of coins from the nation’s payment system. Evidently, the CBN believes that absence of coins was responsible for commodities pricing in multiples of N5, as is presently the case. While that may be so, the fundamental issue is that the value of the naira over time witnessed such erosion that the coins simply disappeared for want of utility and relevance in the payment scene.

The planned restructuring, which includes fresh injection of lower denomination coins, is an important step to create the right kind of psychology for both consumers and marketers alike. It must therefore be matched by due attention to the other economic fundamentals, such as the exchange value of the currency. Good enough, the CBN is already doing a lot to shore up the value of the naira with its initiative to liberalise access to foreign exchange.

The main hurdle in the restructuring, as is ever the case with every public programme, is implementation. Going by experience, such introductions have not always gone without pains, frustrations, and associated disruptions to the economy. The CBN has the onerous duty to manage the planned transition with minimal pains to the citizens and the system. The good thing about the exercise is that the apex bank can use it to gauge liquidity outside the banking sector in the continuing effort to attract more of their funds into the formal orbit.

The final point is no doubt the timing of the restructuring. Given that the apex bank gave no hint on who would handle the planned redesign, are we to take it for granted that the restructuring of the Nigerian Security Printing and Minting Corporation (NSPMC) is now completed? In plain terms, will the printing be handled locally? It would be a major victory in the quest for self-reliance if production can be done 100 per cent, by NSPMC.