THE
plan by the Central Bank of Nigeria (CBN’s) to introduce the N5,
000 note into circulation next year came under fierce attacks from
eminent Nigerians, political parties and public institutions at the
weekend.
Among those who criticised or counselled the CBN against going ahead with the plan included the Obafemi Awolowo Institute of Government and Public Policy, Lagos (an independent think tank and research institute), a lawyer and lead director, Centre for Social Justice (CSJ), Eze Onyekpere and a financial analyst, Tunde Salman.
Last week, CBN Governor, Mallam Sanusi Lamido Sanusi, announced plan to redesign N50, N100, N200, N500 and N1, 000, convert N5, N10 and N20 to coins and introduce N5000 note.
The institute’s Director-General, Prof. Adigun Agbaje, said the currency reform announced by the CBN would have four major unintended and unsavoury consequences.
In a statement issued in Lagos, the Institute noted that, irrespective of the desirable objectives that may have informed the plan to introduce the new currency, including possibly the need “to raise government revenue” and “reduce the cost of transactions”, such objectives are also likely to have “unintended effects” or inflict “collateral damage.”
Agbaje said the new note is a step in wrong direction because “it is a slippery slope towards hyper-inflation.”
In a statement issued in Lagos yesterday, the institute observed that while the introduction of this new high denomination might serve the dual purpose of raising revenue for government on the one hand and reducing the cost of transactions on the other hand, the unintended consequences and collateral damage of introducing it might far outweigh the benefits.
According to Agbaje, the policy would signify not only a regime of increased and sustained fiscal deficit financing but inevitably generate further inflation that would “erode the real value of the seigniorage revenue derived” from the higher face-value currency.
According to the institute, “it runs counter to the recent policy of the CBN to promote a “cash-less” economy by encouraging the increased use of non-cash transaction instruments. This policy, which is aimed at reducing the use of cash has been justified by the need to reduce the burden of the cost of printing and distributing currency notes. The introduction of a high face value currency note actually does the opposite. “By reducing the unit cost of printing and transportation, it actually should promote the use of cash.”
Oyejide, an economist at the University of Ibadan (UI) said there is strong historical evidence that the introduction of higher and higher face value currency notes in an economy often signifies a regime of increased and sustained fiscal deficit financing.
“This is, unfortunately, a failure-prone strategy because the inflation which it inevitably generates tends to erode the real value of the seigniorage revenue derived,’’ he said.
Also, he said, the issuance of high face value currency notes is likely to be perceived as an indication of government’s failure to effectively control inflation.
Once this perception takes hold, he explained, increased inflation expectations could be built up quite rapidly.
To Onyekpere, monetary policy must come as a bundle, a coherent and self reinforcing set of policy commitments that would ultimately promote macroeconomic stability and the common good, stressing that Nigerians were yet to come to terms with cashless policy being promoted by CBN as it was still at the experimental stage in Lagos and had not been extended to other parts of the federation.
He stated that in the midst of this call for adjustment, the plan to print the N5,000 note was contradictory to the cashless policy.
Salman said the proposed note appeared as counterproductive to the effort towards fighting the menace of money laundering, especially for a nation that still finds it very difficult if not impossible to discover the sources of funding incipient terrorism within its clime.
His words: “I hope the new N5,000 note is not another policy somersault? With steps already taken by CBN itself to address money laundering in the country such as ‘know-your-customers re-validation of banks’ customers’ and the ongoing cashless Lagos, one wonder if the proposed higher denomination will not undermine that effort coupled with our inability to discover and disrupt terrorism financing.”
Jimoh Alubankudi, also financial analyst based in the United Kingdom (UK), said that Nigerian legislators dissipate most of their time on constitution amendment and ignore economic challenges that are the fabric of Nigeria entity.
The National Assembly, which carries the mandate of their constituency fails to deliver or deliberate on economic options that will reverse the economic challenges, he said.
Continuing, Agbaje said there is a strong historical evidence that the introduction of higher and higher face value currency notes in an economy often signifies a regime of increased and sustained fiscal deficit financing.
Among those who criticised or counselled the CBN against going ahead with the plan included the Obafemi Awolowo Institute of Government and Public Policy, Lagos (an independent think tank and research institute), a lawyer and lead director, Centre for Social Justice (CSJ), Eze Onyekpere and a financial analyst, Tunde Salman.
Last week, CBN Governor, Mallam Sanusi Lamido Sanusi, announced plan to redesign N50, N100, N200, N500 and N1, 000, convert N5, N10 and N20 to coins and introduce N5000 note.
The institute’s Director-General, Prof. Adigun Agbaje, said the currency reform announced by the CBN would have four major unintended and unsavoury consequences.
In a statement issued in Lagos, the Institute noted that, irrespective of the desirable objectives that may have informed the plan to introduce the new currency, including possibly the need “to raise government revenue” and “reduce the cost of transactions”, such objectives are also likely to have “unintended effects” or inflict “collateral damage.”
Agbaje said the new note is a step in wrong direction because “it is a slippery slope towards hyper-inflation.”
In a statement issued in Lagos yesterday, the institute observed that while the introduction of this new high denomination might serve the dual purpose of raising revenue for government on the one hand and reducing the cost of transactions on the other hand, the unintended consequences and collateral damage of introducing it might far outweigh the benefits.
According to Agbaje, the policy would signify not only a regime of increased and sustained fiscal deficit financing but inevitably generate further inflation that would “erode the real value of the seigniorage revenue derived” from the higher face-value currency.
According to the institute, “it runs counter to the recent policy of the CBN to promote a “cash-less” economy by encouraging the increased use of non-cash transaction instruments. This policy, which is aimed at reducing the use of cash has been justified by the need to reduce the burden of the cost of printing and distributing currency notes. The introduction of a high face value currency note actually does the opposite. “By reducing the unit cost of printing and transportation, it actually should promote the use of cash.”
Oyejide, an economist at the University of Ibadan (UI) said there is strong historical evidence that the introduction of higher and higher face value currency notes in an economy often signifies a regime of increased and sustained fiscal deficit financing.
“This is, unfortunately, a failure-prone strategy because the inflation which it inevitably generates tends to erode the real value of the seigniorage revenue derived,’’ he said.
Also, he said, the issuance of high face value currency notes is likely to be perceived as an indication of government’s failure to effectively control inflation.
Once this perception takes hold, he explained, increased inflation expectations could be built up quite rapidly.
To Onyekpere, monetary policy must come as a bundle, a coherent and self reinforcing set of policy commitments that would ultimately promote macroeconomic stability and the common good, stressing that Nigerians were yet to come to terms with cashless policy being promoted by CBN as it was still at the experimental stage in Lagos and had not been extended to other parts of the federation.
He stated that in the midst of this call for adjustment, the plan to print the N5,000 note was contradictory to the cashless policy.
Salman said the proposed note appeared as counterproductive to the effort towards fighting the menace of money laundering, especially for a nation that still finds it very difficult if not impossible to discover the sources of funding incipient terrorism within its clime.
His words: “I hope the new N5,000 note is not another policy somersault? With steps already taken by CBN itself to address money laundering in the country such as ‘know-your-customers re-validation of banks’ customers’ and the ongoing cashless Lagos, one wonder if the proposed higher denomination will not undermine that effort coupled with our inability to discover and disrupt terrorism financing.”
Jimoh Alubankudi, also financial analyst based in the United Kingdom (UK), said that Nigerian legislators dissipate most of their time on constitution amendment and ignore economic challenges that are the fabric of Nigeria entity.
The National Assembly, which carries the mandate of their constituency fails to deliver or deliberate on economic options that will reverse the economic challenges, he said.
Continuing, Agbaje said there is a strong historical evidence that the introduction of higher and higher face value currency notes in an economy often signifies a regime of increased and sustained fiscal deficit financing.
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