CBN Governor, Mallam Sanusi Lamido Sanusi
By Obinna Chima and Onwuka Nzeshi
Analysts have expressed divergent reactions with regard to the necessity of the proposal by the Central Bank of Nigeria (CBN) to introduce a new N5, 000 banknote into the economy.
While some financial market analysts and operators who spoke with THISDAY described the move as a negation of the cashless policy and a waste of resources, others argued that it would ease transactional constraints.
CBN Governor, Mallam Sanusi Lamido Sanusi, on Thursday unveiled plans to restructure the naira and introduce a new N5, 000 banknote denomination into the economy.
Sanusi had allayed fears that the introduction of such a high denomination will create inflationary pressure, adding that it would rather aid the apex bank's cashless policy.
But the Managing Director/Chief Executive Officer, Cowry Asset Limited, Mr. Johnson Chukwu, faulted Sanusi’s explanation, saying that the proposal “contradicts everything that have been said about the cashless policy.”
Chukwu added: “A higher denomination is not necessary at this stage, particularly at a time when the CBN and banks have invested a lot of resources on the cashless projects. It is going to be a waste of national resources.
“When you give people higher denomination of banknotes that means you are encouraging them to hold cash.”
He also insisted that plans to convert to convert N5, N10 and N20 to coin would fuel inflationary pressure.
According to him, considering the fact that many Nigerians dislike to use coin in their daily transactions, prices of goods and services may rise.
Similarly, Managing Director/Chief Executive Officer, Financial Derivatives Company Limited (FDC), Mr Bismark Rewane, argued that the policy ought to have been initiated before the cashless policy.
“My opinion is that it should have been initiated before the cash-less policy. Since the entire nation is going to go cashless next year, why introduce a higher denomination of banknote?
“Yes, it serves the purpose of portability which is a characteristic of money, but then you have to consider the cash-less policy,” Rewane added.
However, Emerging Markets Strategist, Standard Bank Plc, London, Mr. Samir Gadio, welcomed the initiative by the apex bank saying that it would ease transactional challenges. “In fact, this should not have an impact on inflation since the issuance of new NGN5000 notes will not necessarily affect overall money supply. In Zimbabwe, the issue was quite different since the issuance of larger notes was the result of a hyperinflation-devaluation spiral,” he explained.
His Standard Chartered Bank counterpart, Razia Khan, also supported the CBN’s plan. Khan who is the bank’s head, Macro-Economics and Regional Head of Research for Africa, insisted that “the introduction of a higher denomination note is meant to help with the broad effort of the cashless reforms. It fits with the theme of reducing the cost to banks of having to deal with the management of large quantities of notes.
“It is hoped that this, as well as shared services, will reduce banks’ costs of operation – a benefit they can then pass on to depositors through higher deposit rates. A N5000 note does not even equate to $50, so the magnitude needs to be borne in mind. Middle Class Nigerians will probably find that it eases cash transactions. Lower income Nigerians may not use the new note as frequently, but it should make the handling of cash that they have saved easier.”
Sanusi had also explained that under the proposed new currency structure expected to be officially launched early next year, the existing denominations of N50, N100, N200, N500 and N1, 000 would be redesigned with added security features.
According to Sanusi, 12 new currency structures would emerge at the end of the exercise. These would include 50K, N1, N2, N5, N10 and N20 in the coin category, while N50, N100, N200, N500, N1000 and N5000 will be bank notes.
But for Special Adviser to the President on National Assembly Matters, Senator Joy Emodi, the issue went beyond the fiscal implications. She described the bid as a boost to democracy and gender equality in Nigeria.
“This move is historic for Nigerian women as it marks the very first time any government, whether military or civilian, will confer them (women) with this magnitude of recognition and respect,” she said.
The proposed N5, 000 note would have the image of Mrs Funmilayo Ransome-Kuti, Madam Margaret Ekpo and Hajia Gambo Sawaba.
Emodi said the three women deserved the honour having contributed immensely to the development of Nigeria during their life time.