Leo Godman is a financial director and works with an Advertising Agency in Lagos. In this encounter, he talks about the implications of N5,000 note and coining of currencies like N20 and N10.
What have you to say about the introduction of N5,000 bill?
First and foremost ,I think it is ill advised and the Central Bank of Nigeria has come up with contradicting policies. I say so because we are pushing the cash less society policy already, and it took time for Nigerians to accept the cashless policy and they have adjusted to that and are loving it.
I think coming up with the current five thousand naira bill policy is wrong timing. It is ill advised, it will distort our pricing and the economy. It will result to a lot of challenges. It is also an admittance that the monetary policy they have is failing. I will explain that.
We as a nation have been operating with some currencies and the highest was one thousand naira bill. It is the role of government officials and both the monetary policy and fiscal policy formulators to manipulate and work with both monetary and fiscal policies to such extent that inflation is controlled. We should not allow inflation to continue . It is also the duty of Central Bank on Nigeria to ensure that the value of our currency doesn't fall.
Take a look at United Kingdom, or United States of America. Even in periods when United States of America has to inject a lot of money into the economy, especially under Obama administration just to inflate their economy, they have worked very hard on their currency to ensure that the value doesn't drop. At a certain point, the value of their currency was almost going down, but they worked very hard and brought it back and made it to be stable. Also lets take a look at the British Pound, how many times have the value of their currency fallen ?
They do everything they can just to regulate their economy to ensure they stabilise it and their currency remains very stable. But in Nigeria what is happening? Inflation is choking up the value of our currency. The value of our currency is falling from different angles.
Nothing seems to be working. We have a lot of factors attacking the value of our currency. When you say you are using one thousand naira today and you are introducing a bigger denomination, it's wrong.
Indirectly, the apex bank is saying that look, our policies have failed, you are saying that sorry, we have not been able to hold inflation down, sorry we have not been able to hold the value of our currency, the value our currency is falling and inflation is going up which we all can see. But why are these happening? It is happening because we do not have good policies that can run the economy effectively.
Okay, if inflation is going the way it is going, the value of our currency keep going down the way it is going down, we keep demanding for Dollar without exporting .
The only source of income from Nigeria as at today is oil. Why are we not encouraging the real sectors, for instance like agricultural sector such that we have a lot for export that can yield us forex and then through that, the demand for dollar won't be as much as it is today and through that, the value of naira can begin to appreciate gradually against other foreign currencies.
Rather , what we are doing is that everybody is fighting and depending on the same dollar that comes in through oil money and inflation is flying through the roof. The value of our currency is falling and what CBN thinks is best is to introduce five thousand naira bill.
It is a simple admittance that their policies have failed and in all sincerity. If inflation goes the way it is going and the value of the naira is falling the way it is falling, and CBN introduces five thousand naira bill and inflation continues, the value of naira will keep falling.
It means the next thing is to eventually introduce seven thousand bill, ten thousand bill and fifteen thousand bill and so on but where will that lead us? Is it not possible for us to work on the value of our currency such that naira will become stronger to the extent that when we take ten kobo to the market, it can buy something.
Take for instance, Tom -Tom used to be sold for one kobo, and the price kept going up until the CBN called all those lower denominations and what happened to Tom Tom ? It became three Tom-Tom for twenty naira. When government cut the lower denomination, those coins will get out of circulation and even the banks will begin to reject the coins. Nobody wants to carry them because they are too bulky, too heavy and they smell.
In developed countries, they use coins. Even Ghana here uses coins which is quite light. Go to the UK, go to USA , look at their coins. They are light.
You don't need to carry coins that are so bulky. I hope Sanusi carries coins in his pocket and also I hope the people who are defending coining our lower denominations are carrying coins in their pockets. From experience, the lower denominations that were coined were phased out and you and I were witnesses to that.
Our lovely five naira, ten naira, and twenty naira notes should be left the way they are. If CBN coins them, it will bring about price distortion and price increase. That is what Nigeria calls inflation. People should understand what we are saying. We are not saying the introduction of five thousand note is what brings about inflation, but you are introducing five thousand at the same time you are coining the lower denomination.
If you do those two at the same time, the prices of smaller commodities will now be re-fined at fifty naira. The implication of that is that items that was sold for five naira, will now be going for fifty naira. Another example is that okada that used to take thirty naira will now be going for fifty naira automatically because that is the lowest denomination of notes. People should not make reference to Argentina, Zimbabwe, India etc.
Do we want to be like Zimbabwe? Must Nigeria model our economy like them? Look at our life style. We as a country model ourselves after the great western countries and when it comes to currency issues, they start mentioning Zimbabwe, India and Argentina. We should come off it.
I think what our CBN should do is to work in conjunction with the executive and ensure that this economy is brought back to the part of development, ensure that the value of our currency is continuously enhanced and ensure that Nigeria keeps getting stronger .
What was the exchange rate when Sanusi came in, what is the exchange rate as at today? Our naira has been falling . I think what CBN should be doing is to formulate policies that will influence the value of naira and also give advice to the government on how to tackle corruption in our country.
CBN talks to us about cashless society and shortly you go and produce five thousand naira note, the implication is that if I take two wraps of it, I have one million naira on me, yet you are saying cashless.
I clearly understand what CBN is talking about reducing cost of printing but we are not interested in the volume of money but value of money in circulation. If I go to the UK, I can take my one Pound and go into an eatery and buy myself food. Tell me, if you coin twenty naira, what can I buy with it? If that twenty naira is not so valuable, why should I carry it?
There is a need for us to make our currency so valuable, that should be the primary focus. If CBN can achieve that, I am assuring you that Nigerians are not different, we will begin to use coins. If our coins are valuable that they can buy something reasonable, why wouldn't we use it? What we are saying is that our policy formulators should make our currency become more valuable.