Revaluation Of Naira
LAST week, a major decision took place in the Nigerian monetary system, as Naira would be going through a revaluation process in a year's time.The revaluation process is a comprehensive and revolutionary reworking of the Nigerian economy that will return the Naira to its pre-1986 value.Under the new strategic plan as announced by the Governor of the Central Bank of Nigeria (CBN), Prof. Chukwuma Soludo, the Naira would be re-aligned to the pre-Structural Adjustment Programme (SAP) regime of 1986 when it was at par with the United States dollar.
Soludo stated the legion advantages of the plan:
-To better anchor inflationary expectations, strengthen public confidence in the Naira,
-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.
Apart from re-strengthening the Naira, the governor said that the new agenda, which was the second phase of the financial sector consolidation, would assist in inflation control. The new plan is to form the basis of wages, Naira assets, prices and contract regimes in Nigeria.Defending the plan, Soludo said: "The thrust of the agenda focuses on the Naira as our national currency to realign its denomination, ensure its stability and global integration".These will help to deepen the reforms of the financial system and national economy and make the Naira the currency of reference in Africa, thereby facilitating our quest for international financial status.
"The new focus is an extension our previous currency redesign and re-issuance of the lower denominations and attempt to re-introduce coins.
"Our goals were to redesign the currencies after 23 years (contrary to the international notion of currency redesign after six to eight year), drive down the cost of currency printing and experiment with the polymer substrate. Our objectives are largely achieved and we have learnt a lot from the exercise," he said.
Soludo added further that the new policy followed the new mandate by the CBN Act (2007) to monetary and price stability.Its also informed by the vision articulated under the FSS 2020, it has become imperative for us to evolve a more comprehensive strategy for the Naira as a reference currency.On the apex bank's new focus on inter-governmental relations, the governor said that the new CBN Act did not permit CBN to grant ways means of advances to government exceeding five per cent of previous year's revenue provided such financing was retired before end of the financial year."Indeed, the CBN is not positively disposed to granting any ways and means advance," he said.
The policy, he said, "follows our vision for a Naira that will be the currency of reference in Africa."He explained further: "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/U.S. Dollar exchange rate would be around N1 to $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.
The apex bank boss explained further that the plan would effectively restore the value of the Naira (in short term) close to what it was in 1985 before the commencement of SAP in 1986.
He added that the African Union had 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," he said.
The challenge with this policy is "How do we at least, change the exchange rate on a production driven basis? How do we get the exchange rate to a level where one hundred Naira is exchanging for one dollar so that even if this cosmetic thing takes place in August next year, as they said, we will be exchanging N1 for $1?
Tag:Revaluation,Currency,Nigeria,Exchange rate,CBN,Policies
Soludo stated the legion advantages of the plan:
-To better anchor inflationary expectations, strengthen public confidence in the Naira,
-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.
Apart from re-strengthening the Naira, the governor said that the new agenda, which was the second phase of the financial sector consolidation, would assist in inflation control. The new plan is to form the basis of wages, Naira assets, prices and contract regimes in Nigeria.Defending the plan, Soludo said: "The thrust of the agenda focuses on the Naira as our national currency to realign its denomination, ensure its stability and global integration".These will help to deepen the reforms of the financial system and national economy and make the Naira the currency of reference in Africa, thereby facilitating our quest for international financial status.
"The new focus is an extension our previous currency redesign and re-issuance of the lower denominations and attempt to re-introduce coins.
"Our goals were to redesign the currencies after 23 years (contrary to the international notion of currency redesign after six to eight year), drive down the cost of currency printing and experiment with the polymer substrate. Our objectives are largely achieved and we have learnt a lot from the exercise," he said.
Soludo added further that the new policy followed the new mandate by the CBN Act (2007) to monetary and price stability.Its also informed by the vision articulated under the FSS 2020, it has become imperative for us to evolve a more comprehensive strategy for the Naira as a reference currency.On the apex bank's new focus on inter-governmental relations, the governor said that the new CBN Act did not permit CBN to grant ways means of advances to government exceeding five per cent of previous year's revenue provided such financing was retired before end of the financial year."Indeed, the CBN is not positively disposed to granting any ways and means advance," he said.
The policy, he said, "follows our vision for a Naira that will be the currency of reference in Africa."He explained further: "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/U.S. Dollar exchange rate would be around N1 to $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.
The apex bank boss explained further that the plan would effectively restore the value of the Naira (in short term) close to what it was in 1985 before the commencement of SAP in 1986.
He added that the African Union had 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," he said.
The challenge with this policy is "How do we at least, change the exchange rate on a production driven basis? How do we get the exchange rate to a level where one hundred Naira is exchanging for one dollar so that even if this cosmetic thing takes place in August next year, as they said, we will be exchanging N1 for $1?
Tag:Revaluation,Currency,Nigeria,Exchange rate,CBN,Policies
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