The Central Bank of Nigeria and its agents have been very active, as should be expected, in promoting the merits of the proposed N5000 note. To this end, the apex bank also set out to dispel what it alleges to be disinformation regarding the proposed exercise.
In its widely published one-page advertorial titled, False Rumours on Currency Restructuring, CBN refutes the reported vote of N40bn set aside for this exercise. It is not clear why the CBN waited so long before it refuted the widely quoted value of N40bn in the media; regrettably, however, the apex bank still failed to reveal the estimated cost projection for the project, so that its cost/benefit can be appropriately publicly evaluated.
Central Bank was also eager in its advertorial to confirm that the contract for the proposed currency restructuring has not been awarded. In reality, the issue of contract award is neither here nor there, since CBN appears to have made up its mind, in spite of public opinion.
In earlier press releases, CBN indicated that the concept and designs were completed locally at minimal cost. CBN's cause might probably have been better served, if it had also transparently declared the originating cost as well as the expected savings on the cost of currency management in the country.
Nonetheless, it will be hard to fault the public's lack of confidence on any promise of benefits from such cost savings; for example, the adoption of the cashless programme was touted to reduce banks' operation cost by over 30 per cent, so that ultimately, the banks could support the real sector with single-digit borrowing cost. Inexplicably, this expectation has remained unfulfilled!
Incidentally, in the advertorial under reference, CBN recognises that our currency management costs are influenced by frequency of usage and poor handling. However, CBN's belief that a promo campaign would, on its own, lead to greater respect for the naira and better currency handling, is however, patently unfounded. In truth, adoption and respect for currencies everywhere is based on the recognition of the purchasing value of the currency unit.
In a situation, for example, where N50, the least note denomination, under the proposed restructuring, cannot even purchase one finger of plantain, it is most likely that the funds spent in the production and promotion of the new N20, N10, N5, N2 and N1 coins would be money down the drain!
It is also surprising that CBN identifies the possibility of more precise rounding up as an advantage of the proposed new coin profile; this is, undoubtedly a tongue in the cheek claim, as the new profile has already inherently rounded up primary kobo denominations!!
Nigerians who can remember clearly recognise that coins fell out of favour because they lost any meaningful purchasing value, and it was no surprise when they ultimately found favour with metal brokers. Besides, it is clear that the initial cost of production and destruction of the existing currency profile has not been consciously captured as added cost to the projected expenditure on the new currency structure.
Furthermore, the apex bank's advertorial maintains that "currency restructuring does not cause inflation in any form whatsoever, as it will not increase money supply." This observation, of course, is unassailable, if all things remain equal; in other words, so long as the velocity or the speed of spending money remains the same, there will be no increase in money supply.
If on the other hand, the N5000 note, for example, is speedily offloaded on receipt in order to unbundle the value, there is no doubt that the velocity of currency in circulation would increase and create the same impact as increase in money supply; so, CBN's claims that the N5000 note will not induce inflation needs to be qualified!
Inexplicably, the CBN advertorial further stretches the argument on inflation, when it suggests that "currency restructuring may actually help in tackling inflation"! If indeed reduced inflation rates coincided with the introduction of higher denomination notes in the past, the apex bank has not provided evidence that the drop was the direct result of higher denominations introduced.
Indeed, any insistence of a causative relationship will be an outright contradiction of CBN's open admission that inflation is the product of increase in money supply, as the converse of that is that lower inflation rate is the product of reduction in money supply.
In other words, if higher denominations do not increase money supply, CBN cannot also prove that higher denominations will reduce money supply and lower the inflation rate, especially when it is incontestable that the proposed higher denomination, in conjunction with the cashless programme and coin profile, will ultimately increase the velocity of money in circulation with the same result as increasing money supply.
