Recall that LEADERSHIP had reported exclusively in May that the Central Bank of Nigeria (CBN) planned to introduce N2,000 and N5,000 notes and convert the N5, N10, N20 and N50 notes to coins.
The matter is still subject to widespread speculation since the apex bank has made no official statement about it. Yet the apex bank did not deny it either because when asked to comment about the matter, CBN Governor Sanusi Lamido Sanusi said that introduction of new currency denominations goes through several processes. “Why not allow the process run its course rather than speculating” he had asked then.
To be or not to be, the matter keeps generating comments from different sectors on the implication for the nation’s economy, more so in light of the Cash-less Policy of the CBN. Would the CBN go ahead to introduce the N5, 000 and N2,000 notes when it is preaching the gospel of cashless system? If it does how will it affect the cashless policy as well as the apex bank’s drive to bring inflation within single digit? These are some of the questions bugging many minds.
Managing Director/Chief Executive, Maxifund Investment and Securities Limited and former President of Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu said “I don’t see the basis for the plan by the CBN to introduce the N5,000 denomination particularly with the ongoing cashless policy.”
The cardinal strategies of the Cash-less policy as laid out by the CBN include drastic reduction in the volume of cash in circulation in favour of electronic forms of transaction.
The cash-less policy is aimed at helping the CBN achieve the objective of expanding, deepening and modernising the payments system and also galvanise the CBN in ensuring that Nigeria ranks among the top 20 economies of the world by 2020.
On the other hand, higher denominations, if introduced, would make it easier to move large quantities of cash around with little exposure to risk, but financial critics have suggested that it would be a contradiction to the CBN policy to migrate to a cashless economy.
“The aim of the cash-less policy is to fight corruption and money laundering and also reduce the high cash movement.
The introduction of higher denomination would only be encouraging the very things that the cashless policy is fighting against,” Unegbu said.
Though widely seen as capable of increasing inflation, Unegbu differed on that insisting there was no relationship between high denomination and high inflation.
“I don’t support the argument that it would fuel inflation. This is because there is no study anywhere that has shown that higher denominations increase inflation.
The only problem is the nature of our economy which is characterised by low productivity, low manufacturing processes, high interest rate regime and so on. If the economy was strong there would be no reason to worry about higher denomination fuelling inflation.
Look at a country like Japan for instance, they have the 10,000 Yen as a single denomination, yet it is not causing inflation. This could be due to the strong economy.
That does not mean that we need higher denominations right now.
However, the argument of the CBN may be that the withdrawal and deposit limits would still be maintained, but I see no reason for considering that now. What I think the CBN should be considering is revaluing the currency or redenomination like they did in Ghana.
A financial expert and executive chairman of the Society for Analytical Economics, Nigeria, Dr. Godwin Owoh, had said that if the policy is carried out, it would not only lead to inflation but would increase the ability to carry out cash transactions.
He said the activities of the CBN were becoming more commercial in nature, suggesting that this was more of a fiscal policy than a monetary one and that it should be decided by either the minister of finance or the president.
Owoh said, “There has been no official pronouncement from the CBN on this policy, but if it is carried out, it will only give the bank’s management the capacity to award more contracts, making it a purely selfish and commercial endeavor. The CBN has been carrying out commercial activities, which are normal banking operations – they set rules on how to withdraw or not withdraw money.”
Though the CBN has invested a lot into the cashless policy and point of sale terminals 100,000 units of hardware for e- transactions have been installed in different places. These would likely suffer due to switch of attention to printing of new notes.
“The process of printing money is clearly a fiscal issue. Embarking on this policy would indicate a lack of harmony between the fiscal and monetary policies,” he said.
The apex bank recently reviewed cash deposit and withdrawal limits for the cash-less policy allowing individuals to withdraw and deposit cash up to N500,000 daily while corporate bodies can withdraw and deposit up to N3 million. The figures represent remarkable increase from previous limits of N150,000 and N1million respectively.
The processing fee for withdrawals above the limit for individual customers was also reviewed downwards from 10 per cent to three, while that of corporate bodies was reviewed from 20 per cent to five per cent.
The processing fee for lodgments above the limit for individual customers has been reduced to two per cent from 10 per cent, while the processing fee for lodgments above the limit for corporate bodies was reduced to three per cent from 20 per cent.
As the cash-less policy is extended to five other states as well as Abuja from the next year, analysts believe that higher denominations, if introduced by the CBN, would surely result in more people paying more and more processing fees for both lodgments and withdrawals as there would be more cash to contend with in the system.
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