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Nigeria - currency reform

Started by Figleaf, August 12, 2008, 01:11:05 PM

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Figleaf

CBN Redenominates Naira
Thursday, August 16, 2007 - Daily Trust (Abuja), By Anas A. Galadima

The quantity of Naira notes that Nigerians must carry in their pockets to pay for simple transactions is set to crash next year when a 100 naira note is redenominated to one naira under a plan unveiled by the Central Bank of Nigeria [CBN] yesterday.

The apex bank said two zeros will be removed from the value of each existing currency denomination, so that N1000 becomes N10 while the value of the current N500 note will plummet to N5.

Speaking at a ceremony in Abuja to unveil what CBN called "The new strategic focus on the Naira", its Governor Prof Charles Chukwuma Soludo said this act would restore the value of the naira close to what it was in the early 1980's.

He said with the new policy, which takes effect from August 1, next year, the naira's value to a dollar would change to N1.25k, as against the current exchange rate of N125 to the dollar.

Soludo said, "We intend to restructure the entire currency by dropping two zeroes or moving two decimal points to the left from the currency, and issuing more coin denominations. This would entail a total currency exchange and phasing-out of all the existing denominations from August 1, 2008. Effectively, at the current exchange rate, this policy would mean that the Naira to US dollar exchange rate would be around Nl.25 to US$1 then. All Naira assets, prices and contracts will be re-denominated by dropping two zeroes or two decimal points to the left with effect from this date."

He said with the currency reform, the N1000, N500, N200, N100, and N50 notes would all be phased out and the N20 would be the highest paper denomination. "Effectively, our plan will restore the value of the Naira (in the short-term) close to what it was in 1985, before the commencement of the Structural Adjustment Programme (SAP) in 1986," he said. "Re-denomination and re-introduction of totally new currency structure (notes and coins) following the progress so far with other reforms and the enabling conditions in the economy today are designed to better anchor inflationary expectations, strengthen public confidence in the Naira, make for easier conversion to other currencies, reverse tendency for currency substitution, eliminate higher denomination notes with lower value, reduce the cost of production, distribution and processing of currency, promote the usage of coins and thus a more efficient pricing and payments system, and lay the foundation for the convertibility of the Naira as well as make it the 'Reference currency' in Africa," Soludo also said.

Under the new currency structure, naira notes will only come in 50 kobo, 1 Naira, 5 Naira, 10 Naira and 20 Naira denominations, while the coins would come in 1 kobo, 2 kobo, 5 kobo, 10 kobo and 20 kobo denominations.

The CBN chief said the new policy, which is also part of the financial sector reforms, will make the naira the currency of choice in Africa, and that great efforts would be made at ensuring the stability of the naira and making sure that it integrates globally with other major currencies of the world. He said three measures would be taken to ensure that the currency redenomination is effective. They are, adoption of a policy to focus greatly on minimising inflation in the country, sharing of part of the country's Federation Account Allocation to the federal and state governments in dollars; as well as "Current Account Liberalization/Convertibility and Accession to Article VIII of the IMP."

Under the first measure, the bank would ensure as a matter of priority that inflation was minimised so that the value of the naira remains stable. "The CBN will adopt inflation target as the nominal anchor for monetary policy with effect from January 1, 2009. Low and stable inflation will be our monetary policy's primary long term goal." The second measure, he said, entails distributing part of the country's federation account allocation to the federal government and the states in dollars as a way of controlling excess liquidity which can often cause inflation. The third measure, on the other hand, will be liberalisation of current accounts: "This would entail that Nigeria eliminates all restrictions on current account transactions, and accession to Article VIII of the IMP means that the policy is not easily reversible," he said.

According to Soludo, the currency reform is not a strange occurrence in the world as many countries have done it in the past while others are currently doing it. "Several countries in the world have undertaken currency re-denomination at various times and for different reasons, including: Afghanistan (2002); Germany (1923, 1948); Argentina (1970; 1983; 1985; 1992); Bolivia (1963, 1987); Brazil (1967, 1970, 1986, 1989, 1990, 1993, 1994); China (1955); South Korea (1962); Mexico (1993, 1996); Ghana (2007); Israel (1948, 1960, 1980, 1985); Turkey (2005); Angola (1995, 1999); and others," he said.

"Evidently, many countries have had to undertake the re-denomination more than once. In the case of Brazil, it had to do it many times before it got it right. The major challenge is to undertake other complementary reforms, particularly macroeconomic reforms that will underpin price stability and continuing confidence in the economy," he added.

Soludo said the move has become necessary because "The African Union has granted Nigeria the right to host the Headquarters of the African Central Bank when the common currency in Africa materialises. We must therefore lead the way in terms of properly aligned currency structure and sound monetary policy framework."

Source: Nigeria Daily News
An unidentified coin is a piece of metal. An identified coin is a piece of history.

chrisild

Hmmm. ;) That plan was canceled about two weeks later methinks ...

Christian

Figleaf

An unidentified coin is a piece of metal. An identified coin is a piece of history.

muenz-goofy

Quote from: chrisild on August 12, 2008, 01:38:55 PM
Hmmm. ;) That plan was canceled about two weeks later methinks ...

This article confused me, as well. At first I did not see the year of issue.

Christian is right. Just now I am in Ghana and talked with a Nigerian about this topic yesterday evening. He said that there are no plans for redomination of the Nairia for the moment.

We have to wait for new coins till later...

Regards
Dietmar

God created the ocean, we the boat. God created the wind, we the sail. He created the lull, we the paddle (African proverb)

BC Numismatics

Dietmar,
  We see the new banknotes & coins from Nigeria up on eBay all the time nowadays,including the bimetal 1 & 2 Naira.

As seen as you are in Ghana,are you planning to get some of the current notes & coins from there (which have been in circulation since July 2007) for some of us? If so,I'd be very interested.

Aidan.

muenz-goofy

Quote from: BC Numismatics on August 23, 2008, 09:30:22 PMAs seen as you are in Ghana,are you planning to get some of the current notes & coins from there (which have been in circulation since July 2007) for some of us? If so,I'd be very interested.

Aidan,

I am back from Ghana now. If anyone is interested in a set of the new Ghanaian coins, please let me know by personal message. I bought rolls of unc coins of each denomination at the bank of Ghana. But there was no chance to get fresh notes at any bank, neither in Accra, Kumasi or anywhere else.

Cheers
Dietmar
God created the ocean, we the boat. God created the wind, we the sail. He created the lull, we the paddle (African proverb)

Figleaf

CBN reminds public on use of coins
From MU'AWUYA B. IDRIS, Katsina, RABI AUWAL 20 1429 A.H., TUESDAY  MARCH 17 2009.

Central Bank of Nigeria has appealed to businessmen in Katsina state to imbibe the culture of using coins in business transactions.
The Controller of Central Bank in Katsina, Alhaji B. Muhammad made the appeal at Bankers and Customers' Forum Annual Dinner for the year 2008.
Alhaji Muhammad said coins are legal tender hence should not be rejected.
He explained that Katsina branch of the Central Bank has carried out coin campaign and sensitization exercise to rural areas to enlighten the general public on the need to continue the use coins in their daily business transactions.

Source: Daily Triumph
An unidentified coin is a piece of metal. An identified coin is a piece of history.

Figleaf

Nigerian Economy Without Coins
By Emma Okenyi, undated (29/08/2010)

In the last two decades, the Nigerian financial mangers led by the Central Bank of Nigeria (CBN) and of course guided by the policy of the government of the day, has carried out some reforms in the management of the local currency: Naira and Kobo. When the government of General Yakubu Gowon indigenised the currency, from the British pounds shillings, he introduced what has come to be known as Naira and kobo in 1973. The currency was greeted with wide acceptance by Nigerians. It automatically became the legal tender and was high in value with the United States Dollar and the British Pounds.

Today, the story is different as subsequent administrations particularly that of General Ibrahim Babangida devalued the local currency before some international currencies such as the dollar and the pounds. The devaluation led the conversion of one naira and fifty kobo notes to coins in 1991 and pronto, Nigerians as if acting on impulse, rejected the coins. Since that period, the coins have vanished from the currency design of the country.

Ever since that first attempt to devalue the Nigerian currency before the world's heavy weights, all has not been well with our local coins. The Central Bank of Nigeria subsequent governors, abandoned the idea of re-introducing the coins into the system perhaps because of the long gap after it was rejected and the policy thrust of government of the day who may or did not see the need to research into why the coins were being rejected by Nigerians like a leprosy patient. These metals which huge sums of money were spent in minting them were left in the vault of the apex bank until the appearance of an economist as the governor of the CBN.

Professor Charles Chukwuma Soludo became the governor of the apex bank and within the five years of his stay, attempted to re-introduce the coins into the financial system. Again in spite of the huge sums of money and the widespread publicity urging Nigerians to accept the metals, they were confined once more to the drawers and vaults of individuals and banks. Economic experts have noted that the badly depreciated naira led to the introduction of the N50, N100, N200, N500 and N1,000 notes in Nigeria in the last 20 years! And with the event that our highest currency denomination, the N1,000 note, is the equivalent of only about US$8, it is not inconceivable that we may require a N10,000 note if we wish to improve portability and facilitate cash transactions with higher value currency denominations.

As in the case of Ghana, economists stated, it is not difficult to see why primary kobo coins disappeared from circulation in Nigeria; our 1kobo=US$0.008 i.e. (less than 100th of a cent)! It is virtually impossible to find a product sold for N1 in Nigeria today!

"However, the downside of such a currency profile is the inherent inflationary push that comes with the prevalence of high denominations. The N1 and N2 notes are hardly seen any more, and the N5 and N10 notes, where found, are repulsive to customers because of their dirty, moist and unhygienic physical condition! Inevitably, manufacturers, traders, petrol pump attendants, etc, succumbed to the adoption of N5 or N10 denominations as the minimum cost of their products, and consumer goods and transactions were priced with a minimum value of N10, as change would not be available for commodities priced for less.

The inflationary spiral and wasted value inherent in this every day, amounts to several millions of naira of transactions as values are rounded off to the nearest N10. This must be a pointer for the authorities managing our economy.

The recent reintroduction of the N1 and N2 and the 50kobo coins by the Central Bank during Soludo's tenure was certainly welcomed as it was launched by government of chief Olusegun Obasanjo. The development was also given the green light by manufacturers, traders and consumers alike, and their availability was expected to dampen the upward price push, which the absence of these denominations brought about. Thus, prices can be expected to be more competitive and the often forgone change at petrol stations and other consumer mass markets can now be recovered and the usual
erosion related to such transactions in the past avoided with positive impact on the health disposition of more and more Nigerians.

Soon after the re-introduction of the coins in the first quarter of 2007, the question that agitated the minds of Nigerians was whether or not the new currency denominations will work the magic, and how eagerly the new denominations will be adopted for facilitating exchange of goods and services. The CBN in recognition of the vital role of low denomination coins in ensuring price stability and competitiveness reissued the N2 note as a coin alongside new issues of 50K and N1 coins.

Meanwhile, the older coin denominations of 25kobo, 10kobo and 1kobo were quietly withdrawn from the system as their infinitely small purchasing power made them useless for transactions.

The economic wisdom in coin production CBN noted few years ago was the long lifespan of coins (coins can last over 50 years usage!) The relatively high initial production cost can be amortized profitably over its lifespan, but that is assuming that the coins are available and remain in use. The reverse is the case now to the extent that the apex bank is contemplating doing away with the coins at a giveaway price through auction.

Source: The Sunday Observer
An unidentified coin is a piece of metal. An identified coin is a piece of history.