The Nigerian Institute of Chartered Accountants of Nigeria (ICAN) has faulted the Central Bank of Nigeria (CBN) over the proposed N5,000 note introduction, restructuring of the naira and the intention to spend N40 billion for this exercise, describing the actions as waste of scarce public resources and misplacement of priority.
The institute contends that at a time when the size of government deficit is about 2.8 percent of GDP, spending N40 billion for this exercise will add little or no value to wealth creation, reasoning that the subsisting budget deficit financed largely with domestic borrowing at an unsustainable rate can further be reduced by this huge expenditure if redirected to the funding of infrastructural development.
The CBN governor, Sanusi Lamido Sanusi, had on August 23, 2012 announced to Nigerians of the apex bank’s plan to restructure the existing profile and redesign the Nigerian currency at the cost of N40 billion—an action that sparked off spontaneous reactions from financial industry stakeholders.
In a statement signed by Adedoyin Idowu Owolabi, ICAN president/chairman of council, the institute noted that though the proposed N5,000 notes will reduce royalty payments on existing security features as well as the cost of printing and maintenance of the currencies; enhance the profitability of the CBN and its ability to generate funds for the government, these benefits are not enough to justify its implementation.
Owolabi was of the view that the introduction of the notes would eventually alter the pricing structure of products in the market, leading ultimately to the permanent disappearance of the N5, N10, N20 & N50 notes from circulation.
“The extinction of these smaller denominations will negatively impact the buying capacity and habits of low-income earners and the poor as goods and services will be priced above their levels; sustained increases in prices may the unintended consequence”, he said.
He strongly advocated the CBN should work towards strengthening the purchasing power of the naira through policy consistency, pointing out that the steady slide in the value of the naira in relation to other currencies like the USA dollar, British pound sterling, etc, as an import-dependent country should be a major source for concern.
“As an import-dependent nation, when Nigeria converted to naira and kobo in 1973, the exchange rate was GBP£1=N2.00 and USA$0.30=N1.00. Today, the exchange rate is GBP£1=246.31, USA$1=N157.50. From the literature and empirical experience, devaluation benefits export-oriented economies.
As a mono-product and import-dependent economy, we are most unlikely to benefit from the resultant devaluation that this initiative may unwittingly cause. Since the naira is not convertible, increasing the denomination will not check the perceived trend towards dollarisation”, he reasoned.
He noted that CBN’s repeated change in its monetary policy rate was an indication of severity of inflation which it has been targeting for some time, arguing that if unemployment was lower, it would not have been a cause for worry given the established inverse relation between unemployment and inflation.
“To print more currency as envisaged without earning foreign revenue to support its value will put more inflationary pressure on the naira and lead to a diminution in its value.”