It is so sad that the Federal Government has suspended the New Naira Policy. I strongly believe that it must have been wrongly interpreted to Mr. President. The idea of redenomination of the Naira will immensely or without doubt benefit Nigerians, especially those living in the country. Of course there is a price to pay for it. The price is the temporary inconvenience of adjusting psychologically to the new Naira.
Once that is done, everyone now shouting dead to the idea, will shout alleluia and praises. Redenomination of the Naira will come sooner or later, whether anybody likes it or not, except there is a drastic, should I say dramatic, appreciation of the Naira anytime soon. Otherwise, the question is, do we accept to put off the fire at the nadir and avoid considerable damage or wait until it gets to the apex and effect havoc?. The Polish, Russian and the Ukrainian did. And it was hyper-critical inflation. These countries mentioned had to wait to make up some foreign reserve. Nigeria, luckily has at least over $40 billion as foreign reserve.
The benefits of the Naira reform cannot be over-emphasised. Nigeria has more than the basic requirement to make redenomination quite a success and sustain it. I appreciate the contributions of people like Terence Ekiseh, Dominic Essienimoh and many others for their positive view on redenomination of the Naira. I also appreciate the view of those who expressed fear or doubt without being sarcastic. President Musa Yar'Adua and the CBN boss Prof. Charles Soludo should have this game of decision played behind closed doors. But any act of cheating by any public official should be everybody's affair. Somebody wrote "…Does the man at Ladipo market know where the zeros are in the first place?"
Of course, he might not, but the CBN and the various commercial banks know exactly what to do and how to do it. We cannot go back to the stone age and reintroduce cowries as the legal tender. It would be the task of the CBN and you as an individual to educate the public to avoid panic. Many countries around the world have successfully used it to correct the economic and enjoyed stability and growth in the economy. Ukraine is a living example of currency redenomination. Poland is another example. I do not want to say here that Ghana is yet another example although one Alfred wrote from Ghana to express his concern. But the position of the ruling party in Ghana (NPP – National Patriot Party) is that the economy is better off, inflation rate has dropped to 10.5 per cent as at April 2007, bank lending rate has fallen to between 19 to 24 per cent and in spite of the price hikes in world crude oil prices, Ghana's foreign reserves now stands at two billion U.S. dollars, which is that country's highest since the liberalisation of the foreign exchange market in 1988.
The statement noted that the current re-denomination of the cedi, which took off on July 1, is a testimony of the stability of the cedi against major foreign currencies and also the stability of the economy as a whole. Poland's Central Bank dropped four zeroes from the inflation-ravaged zloty in 1995. It would be recalled that the inflation rate in Poland then was hyper-critical, over 1,000 per cent in late 1993. In Poland , the redenomination turned 10,000 old zlotys into one new zloty. The decision came after inflation had turned even poor people into zloty millionaires, apart from the obvious difficulties in printing and managing of colossal amounts.
As a result of the success in Poland , Russia planned ruble reform for the next year (1996). The ruble reform was such that one new ruble would be worth 1,000 old ones. Prior to the re-denomination in Russia, the exchange rate was close to 6,000 rubles to $1. The biggest ruble note in circulation as at then was 500,000, hyperinflation made the people to lose confidence in local currency. Everyone then preferred to have their wages or salaries in dollars. After the reform in Russia, the economy within a short while, got stabilised and this rendered the use of dollars locally less attractive.
I must admit here, that the 1993 monetary reform in Russia was a failure because there was no economic stability and it was more or less a scrambled period. There was no financial discipline or accountability, every loan received got disappeared into the thin air, to say the least. But luckily for Russia, President Putin, with a strong hand took over, then, the music, the rhythm and the stepping got changed. The revenue from crude oil channeled into stabilization fund helped the Russians immensely.
Ukraine is one of the former Soviet Union's Republic, and was second to Russia in terms of industrial development. After the dissolution of the Soviet Empire, Ukraine declared its independence and introduced thereafter her own stop gap currency with little or no security backup. Inflation led to hyper inflation, mega inflation and so on, as it was in Poland. The situation was hyper-critical. The local currency was being exchanged for 176,000 to $1.
W hat is important about monetary reform is getting the economic conditions that is favourable enough for it. The economy should be relatively stable, at least, for a period of few a months, consecutively. The Ukrainian government, for instance, had the new money printed since 1993, but got it released only in September 1996, because the economic conditions were never considered sufficiently favourable. Redenomination was set to exchange at the rate of one new currency to 100,000 old ones. In effect, Ukraine 's monetary reform did nothing other than chop five zeroes off the old currency.
The Polish National Bank permitted a two-year coexistence in circulation of both old and new currency, while the Russian CBN allowed one year period in which both old and new currency got exchanged but the Ukrainian National Bank allowed for a period of two weeks – from September 2nd to 16th , and any holders of the old Ukrainian currency were allowed to exchange amounts below 100 million old currency (about $600) but sums over the said amount were transferred to special accounts rather than issued as cash over the counter.
With the reform, a lot of money, slashed away in tanks, cupboards, mattresses, underground, etc. and circulating in the shadow economy, will be drawn back into the banking system and would help in reducing bank lending rate. I do not exclude the possibility of a short term inflation as a result of the Naira redenomination. But the government must educate the nation to avoid panic, scramble, cheating and or unnecessary hoarding. The CBN of Nigeria should set aside, from the reserve to mop up any excess liquidity or demand for foreign exchange in the country.
There are many long-term benefits that will make us all proud. We are for the well-being of Nigeria as a nation.
Enato Joseph, an economist and IT professional is Chairman of the Nigerian Community in Donetsk, Ukraine.
