N5,000 note will move corruption into super highway

Recently, the Central Bank of Nigeria announced the introduction of N5000 notes in the nation’s currency. The new notes will make their debut in 2013. The existing naira notes will be restructured. The N5, N10 and N20 notes will convert to coins. The N50 note will be the least currency note in circulation.

The CBN said the introduction of N5000 notes would aid the cashless policy and that it would not be inflationary. The new introduction, CBN said, was in tune with the international best practices and that the N5000 note was designed for the comfort of the people who needed to carry large sums of the naira.

Let us situate the N5000 and N20 notes into the cashless policy: One piece of N5000 is equivalent to 250 pieces of N20 notes; one wrap of N5000, which is N500,000, is equivalent to 250 wraps of N20 notes; while one bundle of N5000, which is N2,500,000, is equivalent to 250 bundles of 20 notes

A man in suit can comfortably wear N5m of N5000 notes in his jacket pockets alone, excluding the trousers’ pockets. He, however, requires at least two oversized “Ghana must go” bags to carry the equivalent in N20 notes.

Which of these denominations discourages the use of cash because of the inconveniences? The N20 note, of course.

Rather than the introduction of N5000 notes, the CBN should reconsider the re-denomination of the Naira, with the N20 note as the highest denomination. It will save itself the gospel of cashless policy and the accompanying expenditure, for people will find it very inconveniencing to carry large sums of money and definitely go for plastic money and electronic payment systems.

The reluctance of many Nigerians to use coins is not in doubt. Yet, those Nigerians that travel to other countries use their coins. The reason is obvious: price tags out there are in fractions (e.g. £4.99 instead of £5). Exact change of one penny is given to the buyer. Coins are used for phone calls or slotted to access entry to such places like parking lots. These are only among many other uses.

With the least Naira note to be designated at N50, a sachet of “pure water” will be sold for N50. The N50 will be the least selling price of any commodity in Nigeria with the introduction of the new policy. This cannot be said to be anti-inflationary.

Corruption, which has been accepted by many as the main cankerworm afflicting the nation, will move into super-highways. A billion Naira of N5000 notes will be comfortably stacked in one corner of the wardrobe.

The physical change in the existing notes means that after sometime, they will cease being legal tender. The import of this policy is that it will free large quantity of currency notes, especially the N1000 notes held hostage in some homes. This will be in an attempt to avoid such currencies from being stale in their custody. They may not have the courage to deposit the money with the banks to avoid answers to some questions, but will rather spend them in the economy. This will be inflationary.

An attitude of money is that it is a store of value. A nation that frequently changes the physical structure of her currency cannot be said to be respecting this attribute. People’s confidence will be shaky and they would seek alternative means for such storage, including doing so in foreign currencies. The consequences of this include the lowering of Naira value.

Part of the CBN functions is to stabilise the value of the Naira and curb inflation. The above policies, if implemented, will run against these objectives. Only the re-denomination of the currency with the N20 note as the highest currency will achieve the desired results.

 

Ikechukwu Okafor,

Head, Banking and Finance Dept.,

Caritas University, Enugu.

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