...Thus, the widespread rumour that another round of currency denomination or currency redesign even if justifiable, is purely a technical issue of no direct connection to the living conditions of the people, especially given the status of the economy in the global order and the impossibility of some extreme measures being successfully undertaken.
Rumour as source of our endeavour
On September 12, 2023 or thereabout, the Central Bank of Nigeria (CBN) had to issue an official statement, with its opening as follows: The Central Bank of Nigeria would like to bring to your attention that the attached message currently circulating on social media is false and should be disregarded. The essence of the action was that CBN denied introducing a policy to make $1 exchange for ₦1.25. The rumour brought back to public consciousness the recent experience with currency redesign in the country along with its traumatic fallouts and in particular, the suspected political undertones in its motivation. I decided that highlighting currency redesign should not be done in isolation but in conjunction with another currency management issue: currency redenomination, hence this theme as couched.
Essentials of currency redesign
An obviously legitimate question at the policy level is: why currency redesign? The broad perception-largely defective- is that currency redesign policy is usually informed by disequilibrium in the macroeconomic fundamentals of countries basically on the basis of poor macroeconomic performance, especially hyper-inflation. To A. Dada in the article, “Currency Redesign Policy Implementation: Implications for Industrial Performance in Nigeria”, the redesign of currencies improves the security of legal tender by enabling countries to prevent counterfeit currencies and their threats to sustainable development. Consequently, policymakers and researchers have recognized currency redesign over a period of time for global competition. More embracing, currency redesign is seen as having the potential to increase a currency's security by helping nations keep counterfeiting to a minimum and stay one step ahead of threats. Additionally, it is anticipated to boost the economy, lower cash management costs, advance financial inclusion, and improve the government's ability to monitor the money supply
In the Nigerian case, in late 2012, the Central Bank had explained on its website that “the redesign of the notes was aimed at making them more secure; to enhance their durability to last longer in circulation and to streamline their aesthetic and security features”. At that time, the apex financial institution actually deployed the term, restructure, as it sought to introduce a N5000 currency unit to the existing ones of N50, N100, N200, N500, and N1000. As Nigerians will recollect, this addition to the currency list was not done at the end of the day. As part of its public enlightenment effort, under a series of Questions and Answers release, the CBN posted the following: What features are captured on the Banknotes to assist the blind and partially sighted people to identify the different denominations?
There are marks of various numbers on each banknote from N100- N5000 for the visually impaired to detect and distinguish:
- N50- -no mark;
- N100--1 bar of mark
- N200—2 bars of mark
- N500-- 3 bars of mark
- N1000--4 bars of mark
- N5000—5 bars of mark
Another Q&A runs as follows: How does the Central Bank of Nigeria fight counterfeiting?
The CBN fights counterfeiting by (i) Researching, developing, and issuing new bank notes with more advanced security features; (ii) Offering free training to people who use cash regularly (like retailers and tellers) so they can identify and report fake bills before they enter the cash supply; (iii) Supporting law enforcement agencies in their efforts to investigate and prosecute this crime; ensuring that notes in circulation are of good quality. Three other issues treated-although not of direct relevance to our theme, are recalled for their potential interest to the reader; they are:
- a) What should I do if I have a counterfeit note?
If you realize that you have a counterfeit note, you should keep the note, record details of the note and contact the nearest police station. If possible, you should provide the police with information about the person from whom you received the note.
- b) Why won’t the CBN reimburse a counterfeit note?
The Central Bank of Nigeria, like all other central banks, will not reimburse counterfeit notes, as this could encourage the counterfeiting of notes for the purpose of receiving reimbursement. The Bank would find it difficult to differentiate between someone who is trying to defraud the Bank and an innocent recipient. The Bank’s legal obligation extends only to notes issued by the Central Bank of Nigeria.
- c) Is it allowed to sell new (Mint) notes in Public? No, it is illegal to sell mint naira notes in the public. The security agencies have been empowered to arrest and prosecute those involved in the illegal act.
The Guardian newspaper in its October 26, 2022 edition did a comprehensive update on currency redesign in Nigeria which qualifies for elaborate citation here: During the pre-colonial era, different cultures used a variety of items as means of exchange. These included cowries, manilas, beads, bottles and salt amongst others. The first major currency issue in Nigeria was undertaken following the colonial ordinance of 1880 which introduced the Shillings and Pence as the legal tender currency in British West Africa. The units of coins managed by the Bank of England were one shilling, one penny, 1/2 penny and 1/10 penny and were distributed by a private bank, the Bank for British West Africa till 1912. From 1912 to 1959, the West African Currency Board (WACB) issued the first set of banknotes (insert hyperlink) and coins in Nigeria, Ghana, Sierra Leone and the Gambia. The highest banknote denomination was one pound, while the one shilling coin was the highest coin denomination. On 1st July 1959, the Central Bank of Nigeria (CBN) issued Nigerian currency banknotes, while the WACB-issued banknotes and coins were withdrawn. It was not until 1st July 1962 that the currency was changed to reflect the country’s republican status. The banknotes which bore the inscription, ’FEDERATION OF NIGERIA‘, now had, ‘FEDERAL REPUBLIC OF NIGERIA’, inscribed at the top. The notes were again changed in 1968 following the misuse of the currency banknotes during the Civil War. Sequel to the decision by the government to change from metric to decimal, the name of the Nigerian currency was changed in January 1973. The major unit of currency which used to be £1 ceased to exist and the one naira which was equivalent to ten shillings became the major unit, while the minor unit was called the kobo; one hundred of which made one naira. On 11th February 1977, a new banknote with the value of twenty naira (₦20) was issued. It was the highest denomination introduced at the time as a result of the growth of the economy; the preference for cash transactions and the need for convenience. The banknote was the first in Nigeria to bear the portrait of a prominent Nigerian citizen, the late Head of State, General Murtala Ramat Muhammed (1938-1976) who was the torch bearer of the Nigerian Revolution in July 1975. The note was issued on the 1st anniversary of his assassination as a fitting tribute to a most illustrious son of Nigeria. He was declared a national hero on 1st October 1978. On 2nd July 1979, new currency banknotes of three denominations, namely ₦1, ₦5 and ₦10 were introduced. These notes were of the same size i.e. 151 X 78 mm as the ₦20 note issued on 11th February, 1977. In order to facilitate identification, distinctive colours were used for the various denominations. The notes bore the portraits of three eminent Nigerians, who were declared national heroes on 1st October 1978. The engravings at the back of the notes reflected various cultural aspects of the country. In April 1984, the colours of all the banknotes in circulation were changed with the exception of the 50 Kobo banknote to arrest the currency trafficking prevalent at the time. In 1991, the 50K and ₦1 were both coined. In response to the expansion in economic activities and to facilitate an efficient payment system, the ₦100, ₦200, ₦500 and ₦1000 banknotes were introduced in December 1999, November 2000, April 2001 and October 2005 respectively. On 28th February 2007, as part of the economic reforms, ₦20 was issued for the first time in a polymer substrate, while the ₦50, ₦10 and ₦5 banknotes; as well as ₦1 and 50K coins were reissued in new designs, and the ₦2 coin was introduced. On 30th September 2009 the redesigned ₦50, ₦10 and ₦5 banknotes were converted to polymer substrate following the successful performance of the ₦20 (polymer) banknote. Thus, all lower denomination banknotes were now printed in the polymer substrate. Finally, the CBN, as part of its contribution towards the celebration of the nation’s 50th anniversary of Nigeria’s Independence and 100 years of its existence as a nation, issued the ₦50 Commemorative polymer banknote on 29 September 2010; and the N100 Commemorative banknote on 19th December 2014 respectively. More recently in 2022, specifically on Wednesday, October 28, the CBN governor, stated that the move to introduce newly designed notes became imperative following the abnormalities bedeviling Nigerian financial, monetary and security systems.
On the issue of currency counterfeiting which has always been a global practice, the American Central known as the Federal Reserve put out the following reassuring statement: Notes must be resistant to increasingly sophisticated counterfeit attacks – security is the primary purpose of a redesign. Careful integration of exclusive security features is the critical foundation to keep cash safe, secure and to ensure the stability of the U.S. economy. Modern technology allows for higher-quality counterfeits. New features, closely aligned with and integrated into new design, are developed to address this threat. More than a decade of research and development, followed by years of optimization and integration testing into the banknote, is required to ensure the successful deployment of these features into U.S. currency. Instructively, the notice added this: The Banknote Development Process calls for extensive testing which can take years to successfully complete. The process calls for progressively more mature tests – with each test resulting in lessons learned to improve subsequent tests until banknotes are ready for production and issuance. This process is complex and time-consuming and requires comprehensive assessments of results, data analysis, design and feature modifications and modifications of consumables, press equipment and materials.
One hidden yet important aspect of the Nigerian experiment with currency redesign is the phenomenon of hoarding. On this, former President Buhari after a meeting with the British Prime Minister in London on the eve of the policy said that the commencement of the Naira redesign would take care of the hoarding of banknotes by members of the public with over 80% of currency in circulation outside the vaults of commercial banks. The former CBN governor and independent analysts added their argument to the effect that beyond the main goal of fighting counterfeiting and the financial industry sustainability, redesigning most naira notes would help INEC in monitoring the funding of campaigns and restricting the incidence of vote buying which has become a menace to Nigeria’s electoral system.
Currency Redenomination Decoded
In the 2007 piece, “The Economics of Currency Redenomination: An Appraisal of CBN Redenomination Proposal”, published in Munich Personal RePEc Archive (MPRA), Dogarawa Ahmad Bello explained how redenomination generally involves the process whereby a country’s currency is recalibrated through a reduction in the number of zeros in the currency with a view to achieving a set of given economic and fiscal objectives. Typically, currency redenomination may come as part of a broad package of economic and political reforms. A few country cases can be recalled for illustration:
- In Afghanistan in October 2002, following years of decline in the currency’s value, a new afghani was introduced, with three zeros removed; as a means by which credibility of the currency would be restored, as was the case in Turkey, leading to reduction in the nominal value of its Lira by six zeros;
- In Zimbabwe and Ghana, three and four zeros were removed from the old Zimbabwean dollar and cedi respectively;
- In a bid to ensure macroeconomic stability and efficient payment system, Nigeria joined the league of countries that adopt currency redenomination. The Central Bank of Nigeria (CBN), on August 14th 2007 made public its proposal to restructure the naira by dropping two zeros or moving two decimal points to the left from the currency and issuing more coin denominations, thereby making the old N100 note equivalent to N1, while N1 equate N01 or 1 kobo.
The thrust of Nigeria’s reform- as announced by the apex bank- was to stabilize exchange rate, reduce inflation, reform microfinance, restructure the lower denominations of our currency and re-introduce coins, as well as promote the efficiency of the payments system. It is easy to see how this measure strongly interfaces with broader monetary policy.
Monetary Policy in the Mix
As affirmed by Darlington Nwachukwu and C U K Nwogu in their article, “Monetary Policy and Marketing Performance of Businesses in Port Harcourt: A Case of Naira Redesign in 2022”, published in International Academy Journal of Management, Marketing and Entrepreneurial Studies, December, 2022, going by Keynesian theory, monetary policy plays a crucial role in influencing economic activities of a given society. The theory argues that a change in monetary policy of the supply of money can permanently change some variables such as aggregate demand, interest rate, level of employment, level of income, and output. How currency redesign and redenomination interface with broad monetary policy is brought out by –who noted how monetary policy over time involves redesign and reissue of currency for several reasons around the world. Generally, currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties. Programmatically, monetary policy entails measures to coordinate various financial interventions for sustainable development of a nation
It is pertinent to recall the findings of Dada in the work cited earlier which revealed that the currency redesign policy implementation in Nigeria had negative short term effect on industrial performance. The effect included weak access to cash flow, vulnerable economic hardship, inadequate marketing/loss of customers; and low returns on business investment. It also revealed that, in the long run, the policy has a positive effect as it leads to reduced currency counterfeiting, encourages a cashless economy, addresses cash hoarding that has led to reduction in the incidences of kidnapping and terrorism as well as strengthen the Naira against the US dollar. All these sound fantastic but in reality, do the fundamentals of the economy actually change in response?
Looking Beyond the Surface
What is considered to be of primary importance is how far policies of currency redesign and currency redenomination go to affect the functioning of the economy and its delivery of public service. From the foregoing, it is evident that both policies carry little bearing on the fundamental logic of the system although if carefully done, can register impact on routine daily operations. The takeaway from this summary is that neither policy thrust for example addresses two of the most critical weaknesses of the say the Nigerian economy, namely: poverty and income distribution inequity. Thus, the widespread rumour that another round of currency denomination or currency redesign even if justifiable, is purely a technical issue of no direct connection to the living conditions of the people, especially given the status of the economy in the global order and the impossibility of some extreme measures being successfully undertaken. I come in peace, please.