Clement Nwoji
15 August 2007
Abuja — Central Bank of Nigeria (CBN) yesterday in Abuja announced plans to redenominate the Nigerian naira, with effect from August 2008.
The CBN proposal to restructure the entire Nigerian currency by phasing out all the existing denominations and issuing more coin denominations by August 1st, 2008 is projected to achieve Naira/ US dollar exchange rate of N1.25 to US$1.
It is also expected that, Nigeria would have coins in five denominations of 1 kobo, 2 kobo, 5 kobo, 10 kobo, and 20 kobo just as the notes would be in five denominations of 50 kobo, 1 Naira, 5 Naira, 10 Naira, and the highest being 20 Naira.
Also, the Federal Government would with effect from September, 2007 disburse the Federation Account Allocation in US Dollars in order to deepen the Foreign Exchange Market and facilitate liquidity management.
CBN governor, Prof. Chukwuma C. Soludo disclosed these yesterday among other key monetary policies which must be implemented as the nation targets the actualization of the Financial System Strategy, FSS 2020 while making presentation on "Strategic Agenda for the Naira".
He explained that all naira assets , prices and contracts would be re-denominated by dropping two zeroes or two decimal points to the left with effect from the date , adding that the aim was to restore the value of the naira close to what it was in 1985 before the commencement of the Structural Adjustment Programme (SAP) in 1986.
According to Soludo," re-denominating and re-introduction of totally new currency structure (notes and coins) following the progress so far with other reforms and the enabling conditions in the economy today are designed to better anchor inflationary expectations, strengthen public confidence in the Naira, make for easier conversion to other currencies, reverse tendency for currency substitution, eliminate higher denomination notes with lower value, reduce the cost of production, distribution and processing of currency, promote the usage of coins and thus a more efficient pricing and payments system, and lay the foundation for the convertibility of the Naira as well as make it the ' Reference currency' in Africa".
Soludo maintained that as the African Union (AU) has granted Nigeria the right to host the Headquarters of the African Central Bank when the African common currency comes into effect, it is necessary for the nation to lead the way in terms of properly aligning its currency structure and sound monetary policy frame work.
He cited many countries which had undertaken currency re-denomination at various times for various reasons including Afghanistan (2002); Germany (1923, 1948); Argentina 1970; 1983; 1985; 1992); Brazil (1967, 1970, 1986, 1989, 1990, 1993, 1994) among others, adding that many of the countries had done it several times before they got it right.
The CBN Governor stressed that going by the Nigeria's experience and those of other countries, the major challenge remained to undertake other complementary reforms, particularly macroeconomic reforms that would ensure price stability and continuing confidence in the economy.
The additional reforms, he listed include the adoption of inflation-targeting framework for the conduct of monetary policy; sharing of part of the Federation Account in US Dollars to deepen the forex market and liquidity management, and current account liberalization/convertibility and accession to Article VIII of the International Monetary Fund.
"In the light of the new mandate as contained in the new CBN Act 2007 urging the CBN to "ensure monetary and price stability" and the need to provide a transparent , credible framework to lock-in inflationary expectations, the CBN will adopt inflation target as the nominal anchor for monetary policy with effect from January 1, 2009", he said.
On the sharing of the federation account among the three tiers of government, he said the federal and the state governments would be receiving their allocation in dollars while that of the local governments would still be in Naira.
To facilitate these, Soludo explained that "both the states and Federal Government will be required to open special domiciliary accounts with the commercial banks of their choice. The special account can only be accessed by monetizing the balances in Naira", adding that the governments were not allowed to withdraw dollar cash but could use part of their domiciliary accounts for settlement of external obligations.
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