Time to Revisit Redenomination

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MAKING COMMON SENSE

By Ben Murray-Bruce

Nigeria is officially in a recession but that is not even the troubling thing. The more troubling thing is that our naira is very unstable especially after it was allowed to float.

It may take some time for the naira to stabilize or it may never stabilize. But one thing is clear, while the naira is going up and down it will affect businesses.

Businessmen will have difficulty planning because you need stability to plan. Foreign Direct Investors will be wary of Nigeria because they need certainty before they can invest.

Already several international financial institutions including WorldRemit have suspended money transfers to and from Nigeria.

The truth is that if we keep on doing the same thing, we will keep on having the same results. That is just plain commonsense.

We need to do something radical to change our situation for the better.

I recommend going back to the idea of re-denomination of the naira that was floated by the former Central Bank of Nigeria governor, Professor Charles Soludo about eight years ago.

That idea was a brilliant one which had worked in Ghana and helped stabilise their currency and boost their economy.

Many Nigerians remember the Ghanaian cedi from the eighties as a very weak currency compared to the Naira. Many of us who are old enough used to laugh at that currency.

However, after Ghana re-denominated the cedi in 2007, the currency bounced back and became stronger vis-a-vis other major world currencies.

In the 80s, one Naira could get you over 40 cedis, but as of today, one cedi would get you 80 Naira. The table has been reversed! The cedi is now stronger than the Naira and Ghanaians are having the last laugh.

One dollar would get you 4 cedis today whereas one dollar could get you almost 400 Naira. But the main difference is in the stability. The value of the cedi remains strong and stable while the Naira is weak and unstable.

Ghana was not the first country to re-denominate its currency. Turkey re-denominated its currency in 2005 and it was a success in fighting inflation.

In fact, before their re-denomination exercise, Turkey suffered from hyper-inflation, but after the Turkish Lira was re-denominated and six zeroes were removed from the currency, their inflation reduced to single digit rates.

China has also re-denominated and their currency now competes with the dollar as a world currency.

Professor Soludo planned the same thing for Nigeria. The naira re-denomination he planned for would have taken two zeros from the Naira meaning that N10 would automatically become 10 kobo while N100 would become N1 and N1,000 would become N10.

The expected result of the re-denomination was that it would neutralize inflation because more currency would be in coins and just the psychological effect of that alone would drive down prices.

Also, one of the major reasons why a currency has or does not have value is the cost of printing it. With the re-denomination, the cost of printing the Naira would have gone down as less high quantity of high denominations of the currency would be printed and be in circulation.

Also, re-denominations immediately drives down the costs of handling cash and book keeping as well as other accounting costs.

The international consulting firm, PriceWaterhouseCoopers noted that the re-denomination of the Ghanaian cedi reduced the cost of doing business in Ghana by, and I quote,  ‘reducing the time taken to input financial data and time spent by management in reviewing the same’.

Nigeria has a great economic challenge today. Inflation is now in double digits whereas it was in single digits last year. The purchasing power of the naira is losing value everyday. The naira is exchanging for the dollar at double the cost it did last year. Banks are firing their staff. Businesses are closing down.

If we continue to do the same thing, we will continue to have the same results. It is time to try new ideas.

Over 50 nations have re-denominated their currency. There is enough evidence of the success of this exercise. We do not have to reinvent the wheel. Let us learn from others and save our economy.

Was it not Einstein who said that doing the same things and expecting different results amounts to insanity? We can keep switching from the Dutch Auction System to the Modified Dutch Auction System to stopping the sale of foreign exchange to Bureau de Change and reversing that policy, but where would that leave us? Where has that left us?

And some of the policies we are putting out there just look to me like panic measures which cannot get us the results we are seeking.

Let us do the prudent thing and redenominate and then going forward there should be a convergence of the official interbank rates and the black market rates.

Once we have a redenomination in place, the next thing we will need is for the Central Bank of Nigeria to be truly independent. No more should anybody or institution, no matter how powerful, have a say or any influence on how the CBN directs the monetary policy of the nation.

The CBN governor must be allowed to take decisions without looking over his shoulders. If he is always being second guessed by the executive or by influential captains of industry, he will lose his gumption and his command presence.

This is what happened to Professor Charles Soludo after then President Umaru Yar’Adua intervened to halt his naira redenomination project on the flimsy excuse that Soludo did not consult with him.

Ideally, the CBN governor should consult with the CBN board and the Monetary Policy Committee and once decisions are taken at those meetings, the President should be informed first as a matter of courtesy and not for the purpose of seeking approval from him.

Ideally, it is the Senate that should oversight the CBN and that is why we get regular briefings from both the CBN and the Minister of Finance.

In America, their version of our Central Bank (known as the Federal Reserve), like many other central banks, is an independent government agency that is only accountable to the public through the United States Congress. Neither the US Federal Reserve nor its chairperson are answerable to the American president.

The result of this is that the monetary policy of America is completely divorced from politics. It does not matter whether there is an election or not, if the US Federal Reserve needs to take a decisive action, it takes it.

This same practice is in operation in almost all nations that have a stable economy. The only nations I can think of where the President interferes with the autonomy of the central bank are Venezuela and Zimbabwe, and looking at the state of their currency, I am not sure that is the route Nigeria wants to take.

My name is Ben Murray-Bruce and I just want to make Commonsense!

  • Murray-Bruce is the founder of the Silverbird Entertainment Group and the Senator Representing Bayelsa East in the Senate.