N5,000:00 Initiative by CBN – A Step in the Right Direction but…–Teriba


September 01, 2012 / By Lanre Oyetade, The Mirror

Dr. Ayo Teriba is chief executive officer at Economic Associates. In this interview with Lanre Oyetade on the proposed change in the country’s currency structure by the central bank, he states that there is much to be desired in the measure but more needs to be done. Excerpts:

What are your views on the proposed currency restructuring, especially the introduction of the N5,000 note, which has caused so much controversy?

I had advocated the scheme since 1996. I had advocated the introduction of larger notes and coining of smaller notes since then. It is indeed a step in the right direction and I don’t think we have gone far enough with the N5,000 note.

Moreover, the gap between the periods we introduce new larger notes is too wide. I think we should do up to a N10,000 and N20,000 notes and coin up to our N200. It is a step in the right direction but definitely not enough. Until your coin can buy a newspaper, pay for urban transport and snacks, for instance, it is unlikely the coin will be used. The argument that your coin will be used for change is not tenable; rather, your coin should buy reasonable items or else people may not use them. Until you can give your child a coin that will be able to buy snacks and drinks at lunch, you will not be motivated to use them.

The same thing applies to currency notes. If you think about it, the rationale should be ‘I want to buy a bag of rice at N9,500’. You will need to count 10 of the N1,000 notes; it doesn’t make sense. Or you want to buy a car tyre; a note should be available to do that transaction. Carrying piles of notes will not make sense; we should think about notes that make sense.  

But there has been the argument that such a large note may fuel corruption, terrorism and money laundering activities… 

So because you want to prevent one per cent of the population from doing something bad, you should deter 99 per cent of the population? It’s a faulty logic. You can’t stop doing what is right simply because it will be abused. With the current N1,000 as the highest denomination, the printing of currency is too costly. Doing higher denominations will reduce the cost of printing notes by reducing the number of notes you have to print. The storage space required, the nuisance of bullion vans and of bulk rooms in banks will all be reduced. Do we exist because of people who want to steal? Do people do money laundering in naira? I think the whole argument doesn’t make sense. Money laundering is done in foreign currencies. The UK, I think, is about to introduce the 100 pound bill and coin the five pound bill.

There has also been the arguments that the N5,000 note will only serve the rich and also that if people reject the coins, as they are likely to, it may fuel inflation as prices of small retail transactions will be rounded off to the nearest note. What is your take on this? 

Let’s take the issues one after the other. Let’s take the first one about the larger denominations being for the rich. Talking about the rich and the poor in the society, as long as the world exists, there will be the rich and the poor and the poor are the ones that are likely to become rich. Should we then say we should not create government reservation areas of low population densities because of the poor? There are people in the UK that have not and will never see the 50 pound bill and there are people who will never ride a Rolls Royce car. Does that then mean that these should not be created? We should not go into irrelevances.

The N5,000 is not for the rich; the minimum wage in Nigeria is N18,000 so the lowest income people can also be paid in N5,000 notes. The N5,000 will also serve as a good pool of storage of accounts or savings and it will also be quite portable. On pricing and the possibility of causing inflation, this calls for a proper understanding of the role of money.

Money is like a measuring rod and your measuring rod should be flexible to suit what you are measuring. It should be flexible enough to measure both short and long measurements. The problem comes only when it is either too long or too short. The currency system should be flexible enough to measure both small and large denominations. I think the CBN should pay careful attention by designing coins that will be desirable to hold.

The N1 coin for instance does not make sense. Also the N5 coin should be small enough as to be commensurate with its value. I’m not just advocating large denominational notes but also functional sensibly-sized coins for pricing purposes. If we have functional coins, the effect will be that it will puncture inflation because you will be able to price to the last penny. However, if they are not functional, it will promote rounding off of prices and not necessarily inflation. Inflation is all about the amount of money in circulation and not about the denominations.

Would you agree that the proposed introduction of the N5,000 note will be at cross-purposes with the cashless economy project like it has been argued in some quarters?  

E-payments and the currency structure should not be confused. Electronic payment is all about one party transferring money to another and these are likely to be wholesale and not retail payments. Cash on the other hand is meant for spontaneous purchases, and where there is no access to e-payment facilities. There are certain transfers that can be made in cash and such are what you use notes for.

Saying the new currency regime will be at variance with the cashless economy project misses the point; they are two separate and distinct issues and we should not confuse them. It’s unlikely that a person going to eat in an eatery will need e-payment. Many transactions will still be done in cash, while e-payments will mainly be for bulk payments.




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