Press Statement: ICAN Opposes Introduction of N5,000 Notes

The attention of the Institute has been drawn to the August 23, 2012 Press Statement by the
Governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi in which he
apprised the nation of the apex bank’s plan to restructure the existing profile and redesign the
Nigerian currency for the sum of N40billion. Given the spontaneous reactions of stakeholders,
the Institute is constrained to make the following observations and recommendations.

1. We commend the initiative to redesign the security features of the nation’s currencies with a
view to reducing the huge annual royalties paid to foreign interests and also make the
currencies extra secure. Such measure in our view will reduce currency counterfeiting and
enhance the confidence of Nigerians in this medium of exchange.

2. There is nothing fundamentally wrong with the idea to introduce the N5,000 as there are
some benefits to be derived. Beside having the potential to reduce royalty payments on
existing security features as well as the cost of printing and maintenance of the currencies,
the initiative will enhance the profitability of the CBN and its ability to generate funds for the
government. It is common knowledge that the CBN orders, prints, mints, handles and sells
currencies to money deposit banks with which they carry out their intermediation functions.
The margin between cost of printing and selling of currencies is one of the CBN’s sources of
fund. Although the cost of printing each denomination is the same, higher denominations are
sold to banks at a premium and therefore, earn more for the CBN. Section 5(3) of the CBN
Act 2007 requires that at year end, 75% of its net surplus must be paid to the Federal
Government. Here lies an incentive to earn more money. In addition to this, the cost of cash
management by banks will further reduce with positive impact on wealth creation.

3. In spite of the above benefits, we are not persuaded that the N5,000 denomination should be
introduced. At a time when the size of government deficit is about 2.8% of GDP (although
within acceptable limit), the intention to spend N40billion for this exercise appears to be both
a waste of scarce public resource and misplacement of priority. Set against the benefits, the
proposed expenditure of N40billion will add little or no value to wealth creation. The
subsisting budget deficit, financed largely with domestic borrowing at an unsustainable rate,
and therefore crowding out available credits to the economy, can further be reduced by this
huge expenditure of N40billion, if redirected to the funding of infrastructural development.

4. In our view, the introduction of N5000 note will eventually alter the pricing structure of
products in the market leading ultimately to the permanent disappearance of the 5, 10, 20 &
50 Naira notes (and even the proposed new coins) from circulation. The extinction of these
smaller denominations will negatively impact the buying capacity and habits of low-income
earners and the poor as goods and services will be priced above their levels. Sustained
increases in prices may the unintended consequence.

5. Also, we strongly advocate that the CBN should work towards strengthening the purchasing
power of the Naira through policy consistency. The steady slide in the value of the Naira in
relation to other currencies like the USA dollar, British pound sterling, etc, as an importdependent
country should be a major source for concern. As an import-dependent nation,
when Nigeria converted to Naira and Kobo in 1973, the exchange rate was GBP£1=N2.00
and USA$0.30=N1.00. Today, the exchange rate is now GBP£1=246.31, USA$1=N157.50.
From the literature and empirical experience, devaluation benefits export-oriented
economies. As a mono-product and import-dependent economy, we are most unlikely to
benefit from the resultant devaluation that this initiative may unwittingly cause. Since the
Naira is not convertible, increasing the denomination will not check the perceived trend
towards dollarization.

6. The CBN’s repeated change in its monetary policy rate is an indication of severity of
inflation which it has been targeting for some time. If unemployment was lower, it would not
have been a cause for worry given the established inverse relation between unemployment
and inflation. To print more currency as envisaged without earning foreign revenue to
support its value will put more inflationary pressure on the Naira and lead to a diminution in
its value. Indeed, one of the indices of a growing inflation, from economic history, is the
creation of higher denominations as exemplified by Argentina, Peru, Poland, Russia,
Democratic Republic of Congo, Angola, Zimbabwe, etc.

7. The aforementioned press statement of the Governor did not indicate whether the
introduction of the N5,000 notes will involve the printing of more currency notes to
complement the existing quantity of money in circulation or it intends to substitute some
smaller denominations with the proposed new note. It merely said that some currencies will
be converted to coins. Whatever, the intention, we shudder to think that the CBN plans to
increase the quantity (volume) of money in circulation by introducing N5000 notes when the
possible inflationary impact of this is common knowledge! Or does the CBN want to
substitute higher denomination for smaller, more convenient, ones when Nigerians are
yearning for enhanced value of the Naira that will lead to the return of Kobo coins? Who is
the beneficiary of a denomination that will stall transactions in rural Nigeria inhabited by
70% of the populace? Only the convenience of the elite and urban dweller will be assuaged.
Following the CBN statistics that 90% of Nigerians’ cash transaction is less than
N150,000.00, why substitute their preference for higher denomination? Is it not obvious that
small transactions will be made more difficult if a proportion of each smaller denomination is

8. We are persuaded that the initiative will impair the modest gains recorded with the Anti-
Money Laundering Act and the pilot cashless policy in Lagos which the Institute expects to
spread to the entire country by first quarter of 2013. The convenience of carriage of N5,000
notes will indeed, be an incentive, not disincentive, to carry cash. Such an incentive will
defeat the acclaimed drive towards a cashless economy. If the international community
perceives that we are lax in anti-money laundering agenda which higher denomination and
convenience of carriage connote, we stand the risk of being the target of FATF initiatives
including blacklisting with its attendant problems for the attraction of Foreign Direct
Investment. This is an untoward route that we have taken before. It should be avoided.

9. The heroines or amazons to be honoured- Mrs Funmilayo Ransome Kuti, Mrs Margaret Ekpo
and Hajia Gambo Sawaba (of blessed memory) – deserve all the possible posthumous
recognitions available because of the profound contributions and enduring legacy they made
to humanity particularly, the less privileged. They represented the finest women of their era
and even today, set against all best practice parameters, their achievements tower. Indeed,
they were rich in ideas, principles and strong in character. As dogged fighters for the rights of
the downtrodden, honouring them with the highest currency denomination belies their proproletariat
stance. They never made any pretensions to pro-elitism and should not be painted
in that light.

10. Finally, the national economy is confronted with a lot of challenges requiring ingenious
strategies to overcome. The cost of doing business is among the highest in the world; the
very high unemployment of youths is creating a lot of social dislocations and security
challenges (graduates of tertiary institutions are now hired as drivers and security guards!);
double digit inflation, etc, have continued to impair the Human Development Indices of
Nigerians. These, in our view, are more critical issues for the CBN and managers of the
Nigerian economy. This indirect devaluation of the national currency is unacceptable. Let’s
work towards making the N100 the country’s highest denomination in the true spirit of a
cashless economy.

Mr. Adedoyin Idowu Owolabi, BSc (Econs.), MILR, MNIM, FCA
48TH President/Chairman of Council
The Institute of Chartered Accountants of Nigeria

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