Nigeria - The N5,000 Note, Unwelcome Change?

The Central Bank of Nigeria has announced plans to introduce a 5,000 naira note as part of a currency restructuring exercise.

Worth just over $30, and superseding the N1,000 note as the largest in circulation, outside observers may fail to see any problem with this. After all, the US has $100 bills, Europe has €500 notes, and as Nigeria’s economy grows larger denomination currency should be in demand. However, the decision has caused considerable controversy in Nigeria, and Bank governor Lamido Sanusi summoned by the House of Representatives to explain himself. What’s the problem?

The Banks’s review of Nigeria’s currency has been going since 2010, attempting to address a range of paper money problems in Africa’s most populous country. First among them is reducing the number of notes in circulation to lower its currency management costs.

Encouraging the use of coins – a tried and failed measure due to their low value - as a replacement for fast-wearing lower denomination notes is the central feature of a new currency structure signed off by president Goodluck Jonathan in December. However, the N5,000 note, officially announced on August 23, was more of a surprise, and has been met with lively opposition.

Chukwudi Jones Victor Onyereri, chairman of the House of Representatives’ Committee on Banking and Currency, said parliamentarians had not been informed of the plans.

Whilst claiming he “fully respect[s] the separation of powers” which gives the Bank autonomous control of monetary policy, he said the potential ”far reaching effect on the national economy and … day-to-day living of the ordinary Nigerian” meant parliamentary approval was needed.

Opposition politicians question whether the N5,000 note represents a means of accomodating rather than combating Nigeria’s inflation, which has eased in recent months but remains above the target of 10 per cent.

“This type of action is only taken where there is a major currency crisis and the Bank must be careful in order not to send a wrong signal … that the Nigerian currency is valueless”, Onyereri told the press on Monday.

Others have questioned whether the notes contradict the Bank’s “cash-less” policies to encourage the use of electronic over physical money, and thereby decrease the informal economy.

The Trade Union Congress and the Lagos Chamber of Commerce and Industry, unlikely allies, have also voiced concerns.

While elite corruption occurs through electronic transfers between offshore accounts, everyday petty corruption requires cash and, as LCCI director Muda Yusuf said on Monday, ”the higher the currency denomination, the better the use of cash as instruments of corruption”.

The Bank’s proposals are a long way off the Z$100tn bills introduced in Zimbabwe during its 2009 hyperinflation – although parallels have been drawn in the Nigerian press – and the Bank has countered accusations it is soft on inflation.

Speaking to beyondbrics, Bank spokesman Ugochukwu Okorafor called the critics’ arguments “emotional” and rebutted claims the organisation had overstepped the mark, saying “we have followed the law to the letter. The national assembly has every right to seek clarification – we will brief them and I’m sure we will come to some understanding.

“We are trying to reduce the number of notes in circulation as part of the cashless policy, and the N5,000 Naira note is going to be cheaper to produce, transport, and destroy”, he said.

The Bank’s hope, he said, is that people will take better care of higher denomination notes – meaning less re-printing – and that wealthier Nigerians will feel less inclined to use dollars for large transactions and as a store of value.

As for corruption, Okorafor says, “The fact that you have the possibility of reckless driving does not mean you shouldn’t produce fast cars”.

If introduced as planned in early 2013, the new N5,000 notes will carry images of three influential women from Nigeria’s independence struggle, Margaret Ekpo, Funmilayo Ransome-Kuti, and Hajia Gambo Sawaba, who Sanusi says represent the nation’s “moral fibre”. Even if the note does make bribes easier, perhaps their disapproving stares will provide some deterrent.