The Federal Government reconsiders the rested naira redenomination policy of the Central Bank of Nigeria
By Clement Oriloye
Governor of the Central Bank of Nigeria, Professor Chukwuma Soludo, clocked 48 years last month, and coinciding with the celebration was what could well be a presidential vote of confidence in a controversial monetary policy the apex bank conceived last year.
A year ago, on 14 August, Soludo announced CBN’s plans to redenominate the naira with a view to fast-tracking revaluation of the national currency. The CBN explained that the medium and long-term benefits of its brain-wave could be appreciated when redenomination was seen in the context of the policy initiatives - adoption of inflation, targeting framework for the conduct of monetary policy, sharing part of the Federation Account Funds in United States of America’s dollar to deepen the foreign exchange market, and liquidity management and current account liberalisation/convertibility. The 4-point agenda was designed to make the naira the “reference currency in Africa.”
The CBN envisaged the gains to include efficient pricing cultivating the habits of using coins and reinforcing the on-going currency reforms, promoting a more efficient payment system by making the Automated Teller Machines an integral part of the nation’s payment culture and decongesting banking halls. If President Umaru Yar’Adua had bought the idea outright, the N1000, the highest denomination, would have started losing the two zeros affixing it with effect from this week. Some economists dub it redecimalisation. But a babel of opinions attended the announcement of the policy, some lauding, others throwing it in the trash can. Michael Aondoaka, Minister of Justice and Attorney-General of the Federation, said Soludo did not obtain presidential approval before announcing the plan. The Federal Executive Council, FEC, also, at its bi-monthly meeting on 29 August last year, demanded more explanation on the policy. At the meeting, Soludo shed light on his new agenda for the naira. Apparently, the CBN’s governor’s explanation wasn’t convincing as the council, through Shamsudeen Usman, the Finance Minister, announced after the meeting that there were still some grey areas of the policy that Soludo needed to clarify with members of the President’s Economic Management Team, EMT.Knocks and kudos trailed the idea. Mr. Sonny Ayere, Managing Director of UBA Global Markets, saw the policy as aiming at increasing the flow of direct foreign investment and boosting technology transfer that could better business practices by providing cheap capital and sophisticated financial instruments. The policy, he maintained, would position the naira as the lead currency in the sub-saharan region and thereby give the country’s financial supermarkets a psychological uplift.
Justice Minister in the second republic and international commercial lawyer, Chief Richard Akinjide, and Professor Sam Aluko, a renowned economist, reasoned that the policy was overdue as the naira was in dire need of a tonic to revitalise it. Akinjide said those who hinged its criticism on lack of infrastructure and a strong productive base are ignorant of the fact that the lacuna was caused in the first place by the weakness of the naira. “Your currency reflects your purchasing power. So there is need for a correction,” he posited. Razia Khan, a London-based economist, argued that the Nigerian government would need a strong, reliable naira, the result that Soludo’s redenomination initiative he believed would produce, to keep inflationary pressure under control.
But Dr. Ayo Teriba, a research economist and Chief Executive Officer of Economic Associates, did not agree that the naira redenomination policy was the immediate solution to the country’s economic woes. In the same vein, Lai Mohammed, National Publicity Secretary of the Action Congress, contended that no amount of decimalisation would strengthen the naira. Muhammed argued that the exchange rate can only stabilise when the nation’s resources are adequately managed by obtaining maximum potential from prudent management.
In the midst of the heated debate on the policy, Segun Adeniyi, Senior Special Assistant on Media to the President, read Yar’Adua’s affirmation that he retained his trust and confidence in Soludo’s “competence and ability to manage the CBN professionally, efficiently and effectively”. The suspension of the policy did not detract from that trust.
Yar’Adua may further be demonstrating that confidence a year after the suspension, if talks emanating from the Presidency ring true. Yar’Adua, the talk is rife, has given Soludo the green light to re-present his naira redenomination agenda. Several factors are being adduced as responsible for the President’s re-think. One, the Ghana experience. In July last year, the West African neighbour shed four zeros off the cedi to kick off redenomination of its currency. A year after, economists have been hailing the policy as tackling Ghana’s inflation rate and positively impacting on the economy generally. The inflation rate in that country in January 2007 was 12.5 per cent; last month, it was put at 10 per cent. The Presidency is, also understood, to have eventually been convinced by CBN’s position that as Nigeria aspires to be Africa’s financial hub by 2020. Redenomination would achieve easy conversion of the naira to other currencies, reduce the risk associated with carrying large physical cash, reduce the cost of producing, distributing and processing the currency, discourage the abuse of the naira, discourage currency substitution and address the perception that the domestic currency is weak despite stability.
abel
25 August 2008 17:25All this talk about devaluation of the naira and all that is the begining of the plethora of white elephant projects hanging all
around the Nigerian nation,if the people concerned knew so much about the economy why did they go on to spend so much
on printing new naira notes only to want to phase it now.The fact remains that as a nation we dont know where we’r coming
from not to talk of where we’r goin.They should go on with their grandiose spending without limit.The lord will surely see us
through!
gina
26 August 2008 16:13Na wa for this this Finance Minister O. He wants his former boss sacked by all means. God will not allow him. Since he became Finance Minister, Nigeria has not witnessed any serious or meaningful fiscal policies emanating from this arrogant man. All his energy has been chanelled against Prof. Soludo.
Remember Former Finance minister Ngozi and her then Deputy, Nenedu Usman? With all Nenedu’s politics and backstabbing, where is she today. Ngozi is doing well as a MD of World Bank and collecting well-deserved awards worldwide. It will be Prof. and this dodgy minister of finance’s turn.
While Prof. will be at the international arena after his meritorous service to Nigeria, God’s grace, this Samsudeen Usman or what is his name will be back in Kano trying to lobby PDP, may be, to become the ambassador to The Gambia or Benin Republic.
Tony Orji
28 August 2008 22:27‘A stitch in time saves nine’,says an english adage. But I want to state here that a ’stitch in time can save us twelve’ if we decide to be wise. Why twelve? The reson is because we have twelve more years to get to 2020,the year we are hoping to be ranked among the top twenty economies of the world.If that vision will not end as a mirage,then we must stop sacrificing economic rationality on the altar of political expediency.
Last year the CBN under the leadership of my erudite and distinguished Prof.C.C.Soludo, came up with a wonderful agenda on how to put our ailing naira on the part of restoration but the powers that be decided to jettison it.Thank God the truth is coming to lime light.Let us stop deceiving ourselves and allow our monetary policy experts in the CBN organise and redenominate the naira.I believe that the end result will be beneficial to all and sundry,including Usman and his Aboki brothers who are cheating themselves in their foreign exchange business.”A stitch in time saves twelve”
Emmanuel
31 August 2008 21:20It never stops to make one wonder why some people who should know better always kick against any good policy that will move the country forward because of their insecurity, self interest or percieved loss of their self “legend in the minds” belief. There is absolutely nothing wrong in redominating the currency as has been proposed by the CBN.
The President should remember or check records of other progressive countries to see that he need not be the best brain in the country to lead this country well. Other countries that have made quantum lead leap into greatnesness have leaders that surrendered themselves with best minds in technocracy. Ghana did and now where we would will be leading, we are trying to play catch up.
Self centered lobbiest for Bureau d Change dealers should consider and weigh that the contiribution of that sector to the economy is very insignificant and must not be an obstacle for the country to move forward. All progress involve weighing cost. and befenits. Redomination of the currency benefits out weighs any cost or loss by miles.
Theophilus Okey Adenyi
1 September 2008 00:30it is because Prof. Soludo is from a marginalised zone that makes Usman the finance minister to develope cold feet about the naira revalutionor whatever they call it. we are going no where if few dolars and pounds are exchanged to plenty naira that can fill a Ghana must GO bag and yat remain valueless. he who dont know how to mould mental gong should look at the tail of the kite. let us emulate Ghana. there is mad rush in Nigeria today by youths to go to a.w.e cos few dollars in their palm can fill a container wt naira.
Great Egumeta
8 September 2008 12:36The true strength of a country’s currency is not it’s artificial value but it’s real value. Perharps the Naira denomination proposal will eventually lead to stronger value but that I can’t say as a layman Economist but using its workability in Ghana as a reason to introduce it is wrong. We have to also look into other concommitant microeconomic and developmental policies that the Ghanaian government put in place in addition to its genuine anti-corruption/business ethics and pro-investment policies. (Remember how non-compliant Nigerian businesses in Ghana were sanctioned?) It is all these, I believe, that have helped Ghana. For Nigeria where no imported policy has ever worked (remember SAP, DFFRRI, etc?), we may need at least 5 more examples of countries where this denomination thing has worked before we jump at telling Soludo to go ahead. He’s brilliant, has done well so far, but why didn’t he say this before embarking on the costly N1000 project? I’ll advise Prof Soludo to play cool and exit the stage in peace before he’d be set up with this same project that was only very recently rejected. Or he thinks they can’t treat him like they did Okonjo-Iweala and “Mama Obama”?