A former permanent secretary in the Ministry of Finance, Abubakar Abdulkadir, has said the Central Bank of Nigeria is introducing the N5,000 note because it has failed to control the double-digit inflation in the economy and is making the same mistake it made when the N1,000 note was introduced thinking it would solve the problem.
Unless the CBN can effectively control inflation, Abdulkadir said, the new N5,000 note will lose value within a year or two and the apex bank would start thinking about introducing a N10,000 note or even a N20,000 note to keep up with the double-digit inflation that is now out of control.
Abdulkadir said, "You see, what has happened is that when we introduced the N1,000 note, it had some purchasing power. "But over the years since it was first introduced, inflation has been eroding its purchasing power. You do not need to be a banker or an economist to know that the N1,000 note you carried five years ago and the N1,000 note you are carrying today are not the same.
"It has eroded considerably. So the Central Bank, in order to further enhance the situation introduced N5,000. They just jumped from N1,000 to N5,000 straight. This will have value for one or two years. Again, they will start thinking of N10,000 and again it will have the same effect before they start thinking of N20,000.
"At the end of the day, what I have been predicting five years ago, we just have to come to it. We just have to redenominate right away because the monetary structure has been carrying a lot of inflation in it over the last 20 to 30 years and, as such, we have to bring sanity into the system."
Abdullahi further stated that that "the Central Bank jumps suddenly to N5,000 shows there is much more to it than they are willing to tell the public. Now, my suspicion is this: over the last 30 years, or more recently 25 years, we have had inflation in this country raging in our economy and the rate is more disturbing.
"It is always hovering in double-digit. And any day we have single digit, it comes between 8 to 9%. That is not satisfactory at all. In other words, accumulated inflation is telling a lot in this economy. So, the Central Bank, in order to prevent a kind of chaotic situation, continues mopping up, removing money from the system.
"Now, this excess liquidity has refused to go down despite all the known measures taken; the economy is running with excess liquidity and that is very dangerous. The present governor of the CBN has tried to mop up quite a lot of money out of the system, but I am sorry to say that he has not been really successful.
"What is even worse is that, because of the excess liquidity in the system, the interest rate has refused to come down and this further fuels inflation again. If interest rate is coming down, then, you find that inflation is also correspondingly coming down. But that is not the case. It is in fact inflation which is pushing the interest rate."
These two phenomena, he said, "are enough to push any Central Bank governor into taking frightening measures so as not to drive the economy into a chaotic situation. Over five years ago, I saw the symptoms of the need to redenominate our currency."