Aug

15

Restructuring the Naira

Filed Under News, Opinion 

The Nigerian Central Bank Governor, Professor Soludo, really meant it when he said he wanted the Nigerian naira to become the legal tender in West Africa. I recently blogged about Nigeria as a black superpower; I think Soludo too believes that. He has outlined plans to revalue the naira by cutting off two zeros from it, or as he calls, by shifting the decimal two places to the left. This would mean that the note currently called 1,000 naira – the highest naira note – would become 10 naira, while a new 20 naira, which would be the highest naira note, would be introduced. There is nothing bad at all in that, as he rightly pointed out, so many other countries have done the same, although his list did not include Zimbabwe. What one wonders about are the reasons he gives for the restructuring. I am not an economist but I will try a discussion of some of the points he gave.

To prepare the way for making the naira internationally convertible. I have no idea how cutting off two zeros from the currency would make it internationally convertible. What underlines international convertibility is normally the performance of the economy, not the amount – how large or how small it sounds – at which it stands against another currency. For instance, the Yen trades at over a hundred dollars, but it doesn’t change its status as an internationally convertible currency. The same goes for the West African CFA, although for a different reason (the CFA is tied to the Euro, and so directly convertible to it, through the assurance of the French treasury).

To strengthen public confidence in the naira. If what the people need is false confidence then this might be nice. But one should remember that false confidence is soon eroded if inflation is not stemmed. It is not about the absolute value of the money you hold, but how much it can buy in the market.

To make naira the reference point in Africa. Well, I really wonder how restructuring the currency would do this. The economy, the economy… one needs to scream that a number of times.

To promote the usage of coins. This is ok, although I wonder if this is the only way to promote the use of coins.

One thing that nobody has mentioned is that it might make it easier for those lugging Ghana-must-gos around to carry much more money in smaller numbers of bags. I am talking about alleged bribery of National Assembly members.

This is my two-penny; I leave the debate to the economists around here.

Share/Save/Bookmark

Comments

Leave a Reply