For several years, monetary transactions in Nigeria have been conducted overwhelmingly using banknotes. For a number of reasons, coins have largely fallen out of use, rendering the Nigerian currency partially indivisible and leading traders to adjust prices upwards to the closest banknote denomination.
These practices have contributed to rising inflation and increasing use of the dollar, but in spite of the precarious state of Nigeria’s currency, the Central Bank of Nigeria’s (CBN) proposed solutions have failed to be popular, leading the government to rethink its strategy.
In August, Sanusi Lamido Sanusi, CBN governor, announced Project CURE, a currency restructuring programme. The bank’s long overdue comprehensive currency review in 2010 made clear the need to make coins acceptable and secure the currency from inflationary pressures.
As part of Project CURE, the CBN was to change the N5 ($0.03), N10 ($0.06), and N20 ($0.12) banknotes into coins and introduce a new N5000 ($30) banknote to discourage the growing use of dollars.
President Goodluck Jonathan approved the move, but federal legislators in the Senate and House of Representatives vowed to forestall the restructuring and the plans were eventually cancelled. Former President Olesegun Obasanjo said the introduction of the N5000 banknote was misguided; some industrialists claimed it would further shrink Nigeria’s low manufacturing profile; and many ordinary Nigerians were concerned that turning lower denomination banknotes into coins would inflate prices up to N50, the lowest banknote remaining.
Under colonial rule the British demonetised local currencies and issued different coins, punishing those who refused to use them. It wasn’t until the 1991 currency restructuring, however, that attitudes began to change. When Ibrahim Babangida’s administration issued a new N50 ($0.30) note and turned 50 Kobo and N1 banknotes into coins, many Nigerians saw it as an attempt to make lower denominations unsuitable for transactions.
In 2007, after several years of disuse, the CBN redesigned the 50 Kobo and N1 coins and reissued them alongside a new N2 coin. The bank frantically attempted to make the new coins accepted via campaigns and advertisements – but to no avail. In fact, it is possible the bank’s very insistence inadvertently undermined itself; the CBN directed commercial banks to pay 2% of withdrawals with coins and to reject deposits of coins –it seemed to many as though the financial authorities did not themselves value the coins. As customers refused to be paid in coins, and beggars stopped accepting them as alms, the banks too began to flout the CBN’s directive and pay withdrawals in only banknotes. Eventually, the CBN relaxed the directive and coins went out of circulation.
Without low denomination currency, Nigerian consumers suffer from the rounding up of prices. And the problems of using naira have also pushed the unofficial use of dollars for transactions in Nigeria.
In a tottering economy with high costs and low standards of living, change is needed. It is imperative that the federal government ensures that the CBN at least continues with the aspect of Project CURE which focuses on making coins acceptable to Nigerians.
Only a currency that is capable of carrying out both the lowest and highest levels of transactions can be effective and ensure that transactions are carried out fairly and reasonably.
Amendment (22/11/2012) - "Nigeria first used coins under colonial rule" has been corrected to "Under colonial rule the British demonetised local currencies and issued different coins, punishing those who refused to use them", to reflect the use of coins (such as Manilla coins) before colonial rule.
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