HOW THE N1,000 NOTE WILL AFFECT YOUR POCKET!

                       BY: LLES LEBA (Email: )

The pre-launch publicity blitz for the introduction of the N1,000 note into our currency denomination
profile started in the last quarter of 2004 and the momentum has gathered speed as we approach
the ‘D' Day later in July this year (postponed from the earlier date in May)!

Our monetary authorities have, however, failed to advance a solid case for the introduction of such
a high denomination at this stage in our economic history especially when older and more vibrant
economies elsewhere maintain a comparatively, much more compact currency denomination

The instrument of Money serves universally as a store of value, a means of exchange and a unit of
account, but the issue of currency denomination in each country is a factor of economic
management in response to apparent domestic realities in the areas of liquidity, inflation and

In general terms, a country with an endemic liquidity problem (i.e. unrestrained cash availability)
will ultimately experience an uncomfortably high level of inflation as productivity will inevitably lag
sluggishly behind the propensity for money creation. In other words, you will have too much
money chasing too few goods and one would require larger sums of money to make dwindling

In those countries where the banking and savings culture are in infancy, there is a greater
propensity to hold substantial amounts of liquid cash to meet day to day consumer as well as
business transactions. In this regard, people will prefer to hold their money under beds and in
private safes at home and elsewhere. The cash culture will be further encouraged where the
people have become suspicions of the safety of banking institutions for the custody of their hard
earned cash! Large denomination currency notes will be a significant feature in such economies.
Thus a combination of the above factors of high cash ratio, inflation and cash culture
predetermines Nigeria’s large and wide currency denomination profile. On the other hand, in the
UK, United States and most countries in the developed world where liquidity and inflation are
properly managed in a developed banking culture, the largest currency denomination remains the

100 unit note and primary currencies of coins continue to be relevant for consumer and business

In the event that the CBN has completed arrangements to introduce a N1,000 note and the
withdrawal of coins below N5, it will be appropriate at this juncture to evaluate the merits and
demerits of high currency denominations without the primary unit of coins (i.e. kobo).

The obvious and singular merit of large currency denomination is the facilitation of carriage and
movement of large sums of money. The huge amount (not real value) of money required for day-
to-day transactions in an economy such as ours can be consolidated in high value notes and thus
make carriage on one’s person or the movement of larger sums of cash less cumbersome and
obvious. The absence of primary unit coins within the system also helps to preserve the durability
of the pockets of our kids and our men folk while our women folk can find other more elegant uses
for their purses and handbags.       However, such merit will become meaningless if naira coins
replace the role of primary currency units i.e. the kobo.

There could possibly be other more important advantages for deleting primary currency units and
introducing higher denomination notes such as the N1,000 note and the N5 coin, but it is clear that
the CBN has been unable to articulate these; this may probably be because no other serious merit
can be ascribed to the new policy!

On the other hand, a ready list of disadvantages of the adoption of large currency notes and the
withdrawal of the primary unit of coins rush for recognition! It will be appropriate to examine just a
few of these demerits.

1.     The removal of the primary unit of coins from the system means that consumer goods and
       transactions have to be conducted with a minimum value of N5, as change would not be
       available for commodities priced for less. Though share stocks may be priced for 50k and
       N1.00, such currency values will no longer officially exist! In effect, this arrangement can
       only increase the general price level and fuel inflation. We may contrast this scenario with
       the currency system in developed economies where consumer and other commodities are
       still priced with a primary currency denomination of coins (cents and pence) as legal tender.
       Indeed, a 50 pence differential can be a significant market advantage in the pricing of
       competitive consumer goods in these countries!

     One may wonder what would happen at our fuel pumps on the commencement of the new
     policy. We would no longer talk of fuel prices in terms of fractions of naira, such as 49.50
     per litre for kerosene or petrol as a motorist would only be able to purchase defined
     quantities of fuel which would require no spillover of change in return.

     In view of the minimum available currency denomination of N5.00, some cynics may argue
     that the new policy only seeks to legitimize the obtuse and pump attendant friendly
     system that is already in place in our culture.

2.   The introduction of large denomination currencies such as the N1,000 note, may also work
     at cross purposes to governments intention of transforming our heavy dependence on cash
     transactions. The temptation to keep larger sums of money under the bed at home and in
     personal safes will further weaken the banking culture and adversely affect the development
     of a savings culture. This would in turn reduce the level of savings and consequently
     adversely affect the investment climate in the country!

3.   Large currency denominations may also be rightly considered to be a boon to the criminal
     minded as cash robberies would be more lucrative and the loot easier to hide! In other
     words, the new policy may actually encourage and fuel the crime rate in the country.

4.   The illegal exportation of the naira, especially for illicit trans-border trade will be facilitated
     with the availability of large naira denominations. The impact of this leakage on the value of
     the naira and governments attempt to curb the importation of banned goods will certainly be
     against the interest of our industries and our economy.

5.   The stake will be higher for the various naira forgery syndicates when the larger naira
     denominations are introduced.       The impact of such scams on the naira value and the
     attendant dislocation on the economy may become an additional burden on an already
     pulverized and disoriented populace.

6.   The large numerical nominal values of even simple transactions will make general
     accounting more cumbersome and unwieldy as most transactions will now be denominated
     in thousands and millions of units. This may be daunting prospect for our children and our
     largely ‘innumerate’ populace in the rural areas. The additional accounting time and space
     required to make daily simple entries and returns in thousands and millions and the
     consequent increased administrative costs would be a covert demerit of the introduction of
     large currency denominations.
7.   The inflationary push attributed to introduction of large currency denominations may reduce
     confidence in the naira and detract from its function as a steady store of value, and this may
     in turn encourage capital flight to perceived stable currencies.

     It will be obvious from the above that the disadvantages to be derived from the introduction
     of large currency denomination certainly outweigh the apparent and real advantages of this
     policy. In this event, why is the CBN eager to commit financial suicide? The decision is
     more worrying when we observe the trend across the border in our sister nation Ghana,
     where large denominations have wreaked havoc on the economy. The primary currency
     unit of coins (Pesewa) has since become irrelevant for settling transactions in Ghana in the
     last 30 years. The currency denomination profile in Ghana now includes 1,000, 2,000,
     5,000, 10,000, and 20,000 cedi notes; meanwhile, the cedi has depreciated from parity to a
     current rate of $1 = 9,000 cedis. (Note that the 20,000 cedi note is equivalent to less than
     N300; in other words, you may need to give your child or ward N20,000 every day for
     transport to and from school, if our economy treads the path of Ghana. How did Ghana’s
     currency get to this sorry state of affairs so quickly, a path to inflation and poverty, which our
     own monetary authorities are obviously intent on treading?!!

     The answer is the failure to accept the reality between a rapidly depreciating exchange
     value of a currency and the consequent need for more cash for simple daily transactions. In
     other words, a rapidly depreciating currency will require higher denominations of currency to
     avoid the need to use a wheelbarrow to carry cash for such mundane activities as shopping
     for domestic grocery; we recall for instance the relatively ‘high value’ of the N20 note when it
     was introduced. You could buy four new car tyres, for example, with the N20 note and feed
     a small size family for a week! The exchange rate of naira against the dollar at that time
     was about N1 = $1.

     The introduction of higher denominations of N50, N100, N200 and N500 has closely
     followed the history of naira depreciation against the dollar. Nigerians are being called upon
     to work harder and produce more with each depreciating value of naira – a clear road to the
     pits of slavery for our people. In the event that the ‘hope of the nation’s economy’, the
     NEEDS programme has projected further depreciation in the value of the naira, we may be
     realistic to expect the introduction of the N2,000, N5,000 and possibly N10,000 note in the
     next 5 – 10 years, if our monetary authorities continue to adopt the current framework of
     monetary policy which demands that our export earnings in dollars be first unilaterally
     converted to naira before sharing the sum to beneficiaries of the federation pool. This
      framework will continue to generate increasingly bloated liquidity with the more dollars we
      earn and the greater will be the need for larger and larger currency denominations and the
      naira in your pocket will give you less and less real value.


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