This was written by Henry Boyo in 2005, fast becoming the norm.


Our monetary authorities have laboured assiduously in the past few days to advance a case for the introduction of the N1,000 note at this stage in our economic history, especially, when older and more vibrant economies elsewhere maintain a comparatively, much more compact currency denomination profile. The instrument of money serves universally as a store of value, a means of exchange and a unit of account. But the issue of currency denomination in each country is a factor of economic management in response to apparent domestic realities in the areas of liquidity, inflation and culture. In general terms, a country with an endemic liquidity problem (that is, unrestrained cash availability) will ultimately experience an uncomfortably high level of inflation as productivity will inevitably lag sluggishly behind the propensity for monetary expansion. In other words, you will have too much money chasing too few goods and one would require larger sums of money to make dwindling purchases. In those countries where the banking and savings culture are undeveloped, there is a greater propensity to hold substantial amounts of liquid cash to meet day to day expenses as well as for business transactions. The cash culture will be further encouraged where the people are suspicious of the security of the banking institutions for the custody of their hard earned cash! Large denomination currency notes will be a significant feature in such economies. On the other hand, in the UK, United States and most countries in the developed world where liquidity and inflation are properly managed in a developed banking culture, the largest currency denomination remains the 100 unit note and primary currency units continue to be relevant for consumer and business transactions. It may be appropriate at this juncture to evaluate the merits and demerits of high currency denominations without the primary unit of coins (that is, kobo) in a domestic economy. The obvious and singular merit of large currency denomination is the facilitation of carriage and movement of large sums of money. The huge amount (not real value) of money required for day-to-day transactions in an economy such as ours can be consolidated in high value notes and thus make carriage on one's person or the movement of large sums of cash less cumbersome and obvious. The CBN is yet to articulate any other advantage than the merit of portability for the introduction of the N1,000 note and minimum of N5 coins when progressive countries are embracing e-currency. On the other hand, a ready list of disadvantages of the adoption of large currency notes and the withdrawal of the primary unit of kobo rush for recognition:
* To begin with; the removal of the primary unit of kobo from the system means that consumer goods and transactions have to be conducted with a minimum value and in multiples of N5, as change would not be available for commodities priced for less. Though shares and stocks, for example, may be priced for 50k and N1.00, such currency units will no longer officially physically exist! In effect, this arrangement can only increase the general price level and fuel inflation when multiplied into millions of transactions everyday throughout the country. We may contrast this scenario with the currency system in developed economies where consumer and other commodities are still priced with a primary currency denomination (cents and pence) as legal tender. Indeed, a 20 cents differential can be a significant market advantage in the pricing of competitive consumer goods in these countries! One may wonder what would happen at our petrol stations on the commencement of the new policy. We would no longer talk of fuel prices in terms of fractions of naira, such as 49.50 per litre of kerosene or petrol as a motorist would only be able to purchase defined quantities of fuel which would require no spillover of change in return. In view of the minimum available currency denomination of N5.00, some cynics may argue that the new policy only seeks to legitimise the obtuse and fuel pump attendant friendly system that is already in place in our culture.
* The introduction of large denomination currencies such as the N1,000 note, may also work at cross purposes with government's intention of transforming our heavy dependence on cash transactions. The convenience of keeping larger sums of money under the bed at home and in personal safes as a result of our cash-based economy will further weaken the banking culture and adversely affect the development of a savings culture. This would in turn reduce the level of savings and consequently adversely affect the investment climate in the country! * Large currency denominations may also be rightly considered to be a boom to the criminal minded as cash robberies would be more lucrative and the loot easier to hide! In other words, the new policy may actually encourage and fuel the crime rate in the country.
* The illegal exportation of the naira, especially for illicit trans-border trade will be facilitated by the availability of large naira denominations. The impact of this leakage on the value of the naira and governments attempt to curb the importation of banned goods will certainly be against the interest of our industries and our economy.
* The stake will be higher for the various naira forgery syndicates when the larger naira denominations are introduced. The impact of such scams on the naira value and the attendant dislocation on the economy may become an additional burden on an already pulverised and disoriented populace. * The large numerical nominal values of even simple transactions will make general accounting more cumbersome and unwieldy as most transactions will now be denominated in thousands and millions of currency units. This may be a daunting prospect for our children and our largely 'innumerate' populace in the rural areas. The additional accounting time and space required to make simply daily entries and returns in thousands and millions, and the consequent increased administrative costs would be a covert demerit of the introduction of large currency denominations. It will be obvious from the above that the disadvantages consequent upon the introduction of large currency denomination certainly outweigh the apparent and real advantages of this policy. In this event, why is the CBN eager to embrace such an uncertain future? The decision is more worrying when we observe the trend across the border in our sister nation Ghana, where large denominations have wrecked havoc on the economy. The primary currency unit of coins (Pesewa) has since become irrelevant for settling transactions in Ghana in the last 30 years. The currency denomination profile in Ghana now includes 1,000, 2,000, 10,000 and N20,000 cedi notes; meanwhile, the cedi has depreciated from parity to a current rate of $1 = 9,000 Cedis or N130. How did Ghana's currency get to this sorry state of affairs such that the N20,000 cedi note is just about $2; a path to inflation and poverty, which our own monetary authorities are obviously intent on treading?!! The answer is the failure to accept the relationship between a rapidly depreciating exchange value of a currency and the consequent need for larger cash sums for simple daily transactions. In other words, a rapidly depreciating currency will require higher denominations of currency to avoid the need to use a wheelbarrow to carry cash for such mundane activities as shopping for domestic grocery; we recall for instance the relatively 'high value' of the N20 note when it was introduced. You could buy four new car tyres, for example, with the N20 note and feed a small size family for a week! The exchange rate of naira against the dollar at that time was about N1 = $1. The introduction of higher denominations of N50, N100, N200 and N500 has closely followed the history of naira depreciation against the dollar. Nigerians are being called upon to work harder and produce more with each depreciating value of naira - a clear road to the pits of slavery for our people. In the event that the 'hope of revival of the nation's economy', the NEEDS programme has projected further depreciation in the value of the naira, we may be realistic to expect the introduction of the N2,000, N5,000 and possibly N10,000 note in the next 5-10 years, if our monetary authorities continue to adopt the current framework of monetary policy which demands that our export earnings in dollars be first unilaterally converted will continue to generate increasingly bloated liquidity with the more dollars we earn and the greater will be the need for larger and larger currency denominations and the naira in your pocket will give you less and less real value. If we are to go the path of Ghana, we may soon be paying N1,000 for a bottle of coke! *Boyo is a company executive in Lagos.

Source The Guardian
https://www.proshareng.com/articles/Opinion-&-Analysis/Merits-and-Demerits-of-High-Currency-Denominations/341