Rumours let loose last month of plans by the Central Bank of Nigeria (CBN) to redenominate the Naira which currently is experiencing a free fall.
Though the CBN has come out to refute the rumour as fake, the rumour has generated a flurry of debates among worried Nigerians. The anger of many Nigerians could be understood considering that many are yet to recover from frustrations created, less than a year ago, by CBN’s failure to execute a seamless cashless policy and currency note redesign. The worry of many Nigerians may also be understood in the light of the antecedent of the immediate past administration, in which such rumours often turn out to be real.
In the current confussion, grapevine sources had hinted that the CBN plans a new ‘Strategic Plan for the Naira,’ in which a ‘New Naira’ would be minted, whose value would exchange at a ratio of 1:100 with the old notes. That is, every N100 of the old notes to be equivalent to N1 of the new, with a prospect of restoring 1 kobo (1k), 2k, 5k, 10k, 20k and 50k coins to replace old N1, N2, N5, N10, N20 and N50 notes, respectively. The rumours gave the starting date as January, 2024, with a transition period of 5 months, by which time the old notes would have been withdrawn. The rumours also gave CBN’s reasons for the exercise to, among other things, be to better anchor inflation expectations, strengthen public confidence in the Naira, and make for easier conversion to other major currencies.
But in its refutation the nation’s apex bank which acknowledged that its ‘attention has been drawn to the wide circulation of a text message suggesting that the bank plans to redenominate the country’s legal tender, the Naira, with effect from January 2024′, said, “We are concerned that this narrative, which we had refuted before now, appears to be gaining traction with several debates on the implication of such a policy for the Nigerian economy.
“We wish to reiterate that the contents of the message are misleading. The authors of the message, in their mischief, modified text taken from an old policy move by a previous CBN Governor in 2007 to make it appear recent.
“To avoid doubt, there is currently no plan by the Bank to restructure and redenominate the Naira. Whilst the Bank may be considering reforms, such are subject to laid down procedures in line with the provisions of the CBN Act, 2007.
“The public is hereby advised to ignore the news report, as it is speculative and calculated to cause panic in the polity.”
While relishing the relief of CBN’s reassurance, it is pertinent to explore the implications of such a policy, however it may have been ill-conceived.
There is no doubts that the value of the Naira is in painful decline as a general reflection of our glum economy. The big question is, Can redenominating the Naira, save it from perpetual slide, or improve our economy? Changing the scale of a falling curve definitely will not halt its trend. Rather, improving on parameters that control a trajectory can, and do swing a bad trajectory towards a desirable direction.
Which brings us to the complex question of, what influences the economy of a country, and by extension, the value of its currency?
A country’s economy is a general reflection of its domestic productivity, which term puts into consideration the efficient use of the factors of production, as well as the efficiency of materials handling in the distribution of raw resources, goods and services within that country. Efficiency has its ramifications in the availability of production machinery, skilled workforce and managerial prowess in the conversion of raw materials into higher value goods, the effectiveness of distribution infrastructure networks that aid commerce, and the percentage of working-age population that has employment opportunity.
An efficient economy produces goods beyond the needs of its domestic demands to create surplus which it trades with outside economies.
Economies which do not produce enough to serve its domestic needs would have to rely upon external supplies. Considering that foreign supplies are acquired in the currency of the supplying country, purchasers of foreign goods must first acquire the foreign currency to enable transaction. In the usual interplay of demand and supply forces, currencies with higher demands are acquired at higher premiums, leading to their appreciation against others.
Where there are shortages in supply, either by deliberate restriction or otherwise, plenty money pursues scarce supply leading to inflation. This is the fundamental law of demand and supply.
In Nigeria’s unproductive economy of over 200 million population, domestic supplies are in dire shortage worsened by supply disruptions from Eastern Europe, leading to biting inflation. Because there is pressure of demand, plenty Naira runs after both goods and the US Dollar, an international legal tender, leading to hyper-inflation that is pushing up the value of the Dollar, while conversely, depreciating the Naira.
The current windfall in the nation’s only production advantage – the petroleum industry, following the war in Ukraine, which would have injected much Dollar into Nigeria’s economy to cushion the downward pressure on the Naira, is being missed due to poor production data, occasioned by coordinated oil thefts. Parts of remaining revenue looted through official malpractices, find its way towards exchange black markets, to push further on the Dollar, as unscrupulous elements try to launder stolen commonwealth.
Redenominating the Naira in this scenario, in the guise of shoring up its value can only make things worse, considering that even minting is also outsourced and a huge amount of Naira would be exchanged to produce new currency notes and spent to dispose the old notes, among other challenges.
An effective solution for Nigeria’s economic woes can only be achieved through concerted efforts to sustain factors that increase productivity in the country. Nigeria should at least be able to provide its basic needs using available natural resources, and do so efficiently, if government straightens-up against corruption, speeds up investments that clear-off bottlenecks in the distribution infrastructure networks, and pursues policies that drive investments in production infrastructure, especially power, mechinery, and skills development.
Government should also boost investors’ confidence in our economy by ensuring security and by rejigging the financial policy frameworks, especially on multiple taxation and profit repatriations. Strategies that improve productivity would spiral a chain reaction that creates more employment for greater productivity towards producing surplus.
Then would the Naira have its place of pride. The onus lies on Nigeria’s policy makers to turn the ugly economic trends around, through the application of tested and trusted economic tools, rather than tinker with disaster-prone currency redenomination, in a country where psychological stress is already reaching a threshold. Which is why the news of CBN’a refutation is quite a relief.

By: Joseph Nwankwor