Naira Regime - Suspension And Economic Implication
WHEN Prof.Charles Chukwuma Soludo-led Central Bank of Nigeria (CBN) came out with the consolidation in the banking industry, a lot of people did not think it would succeed.Today, we see the beauty and the benefits. Such banking consolidation exercise was to create a stronger, safer and swifter banking industry. In truth, a few but strong and enabled banks capable of giving confidence to depositors and customers were destined to emerge from the programme.
These new banks were to be the anchor of a newly industrializing Nigeria. The Soludo consolidation proposal was initially presented as a proposal but it later assumed the nature of an immutable law. It became a policy without discussions. The consequences for banks that could not recapitalize were that such banks would neither participate in the CBN officially regulated foreign exchange market nor allowed to access deposits from government departments, ministries and parastatals.
However, when the consolidation programme came to an end on December 31, 2005, the banks that could not meet the hurdle were simply and callously liquidated, thereby flushing jobs, deposits, and other financial assets down the drain.
Again, Professor Soludo announced on Tuesday, August 14, 2007, that as part of a major policy shift on Nigeria's currency, from August 1, 2008, the Naira would be redenominated to knock off two zeros to the left, while the exchange rate could be N1.25 Kobo to $1, while N20 would be the highest denomination. He further announced that part of Federation allocations would be shared in dollars. In other words, under the new Naira regime, the new currency structure will phase out all denominations above N20, that is, the current 50 naira, 100, 200, 500 and 1000 notes would be phased out.
This landmark development which Nigerians did not support was to transform the country; the economy would be better for it. Perhaps, a lifetime initiative that can only be embarked upon by a man who has the knowledge and who is audacious. It was obvious that the President of Nigeria encouraged this initiative but later withdrew his support for an undisclosed reason.
When you change your money from Dollar to Naira, it somehow appears worthless. By the time you buy ABC items, the money is gone. Each time you get to the Nigerian market, you discover that Nigerian market men and women have priced their goods in dollars whereas Nigeria's currency is the Naira. The new Naira regime would change the psyche of Nigerians and the way they react to pricing of goods. As it is in Nigeria, inflation could be driven by people's manner of reaction to pricing.
The new Naira regime could cut down inflation; the money value could be better appreciated; investors would go for it; it won't have negative effect on investment; more money would go to the bank instead of being kept in the homes; it would cut down on high level armed robbery; it may induce mostly economic immigrants who were forced to flee Nigeria due to the harsh economic climate to hurry back to Nigeria.
Their positive efforts abroad, if put into positive use in Nigeria, could earn them more dividends than where they are marching on a spot in a vicious circle. In other words, those looking for greener pastures would remain in Nigeria; and there could be lesser brain drain, among others. I will also say that Naira abuse would be minimized.
What Soludo is proposing has been done from time to time by other countries. For instance, Argentina, China, Israel, and recently, Ghana in July 2007, have done it. Presently, Ghana's currency is stronger than the Dollar. The new Naira regime is a way of recalculating the relationship between the Naira and the Dollar.
The coins are coming back. In an economy where coins are not used or people refused to accept coins, with currencies in circulation all the time, that economy would have some serious challenge surviving.
Written by Chinedu Arizona-Ogwu
These new banks were to be the anchor of a newly industrializing Nigeria. The Soludo consolidation proposal was initially presented as a proposal but it later assumed the nature of an immutable law. It became a policy without discussions. The consequences for banks that could not recapitalize were that such banks would neither participate in the CBN officially regulated foreign exchange market nor allowed to access deposits from government departments, ministries and parastatals.
However, when the consolidation programme came to an end on December 31, 2005, the banks that could not meet the hurdle were simply and callously liquidated, thereby flushing jobs, deposits, and other financial assets down the drain.
Again, Professor Soludo announced on Tuesday, August 14, 2007, that as part of a major policy shift on Nigeria's currency, from August 1, 2008, the Naira would be redenominated to knock off two zeros to the left, while the exchange rate could be N1.25 Kobo to $1, while N20 would be the highest denomination. He further announced that part of Federation allocations would be shared in dollars. In other words, under the new Naira regime, the new currency structure will phase out all denominations above N20, that is, the current 50 naira, 100, 200, 500 and 1000 notes would be phased out.
This landmark development which Nigerians did not support was to transform the country; the economy would be better for it. Perhaps, a lifetime initiative that can only be embarked upon by a man who has the knowledge and who is audacious. It was obvious that the President of Nigeria encouraged this initiative but later withdrew his support for an undisclosed reason.
When you change your money from Dollar to Naira, it somehow appears worthless. By the time you buy ABC items, the money is gone. Each time you get to the Nigerian market, you discover that Nigerian market men and women have priced their goods in dollars whereas Nigeria's currency is the Naira. The new Naira regime would change the psyche of Nigerians and the way they react to pricing of goods. As it is in Nigeria, inflation could be driven by people's manner of reaction to pricing.
The new Naira regime could cut down inflation; the money value could be better appreciated; investors would go for it; it won't have negative effect on investment; more money would go to the bank instead of being kept in the homes; it would cut down on high level armed robbery; it may induce mostly economic immigrants who were forced to flee Nigeria due to the harsh economic climate to hurry back to Nigeria.
Their positive efforts abroad, if put into positive use in Nigeria, could earn them more dividends than where they are marching on a spot in a vicious circle. In other words, those looking for greener pastures would remain in Nigeria; and there could be lesser brain drain, among others. I will also say that Naira abuse would be minimized.
What Soludo is proposing has been done from time to time by other countries. For instance, Argentina, China, Israel, and recently, Ghana in July 2007, have done it. Presently, Ghana's currency is stronger than the Dollar. The new Naira regime is a way of recalculating the relationship between the Naira and the Dollar.
The coins are coming back. In an economy where coins are not used or people refused to accept coins, with currencies in circulation all the time, that economy would have some serious challenge surviving.
Written by Chinedu Arizona-Ogwu
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