Naira as Nigerian currency was introduced in 1973 by then military government of General Yakubu Gowon. In his budget of 1971, General Gowon announced that Nigeria would convert to decimal system on January 1, 1973. Due to this announcement, in May 1971, the Decimal Currency Decree N0.21 was promulgated. The decree inter alia stipulated that the unit of currency in Nigeria would be Naira which shall be divided into 100 kobo. This brought to an end the pound system. The denominations introduced were N10, N5, N1 AND 50K as notes and 25k, 10k, 5k, 1k and ½ k coins.
Recently, it was widely and conspicuously observed that the smaller denominations of naira are disappearing from circulation. Participants in the micro economic sector, which is the larger part of the economy, are bemoaning this ugly trend. Bus conductors, barbers, hair dressers, retail shop keepers, itinerant traders, small scale business owners to mention but a few are all worried about the continuity and survival of their businesses due to this current scarcity of lower naira units. As it stands now, one can easily point out some of the causes of this bad situation. People’s apathy towards acceptance of coins, Automated Teller Machines (ATM), the commercial banks, the Central Bank of Nigeria as well as the individual cash (naira) sellers are some of the visible agents responsible for the scarcity of smaller naira denominations in circulation.
Coins used to be visible in economic activities in the country. From the pre-independence period when the first set of coins was introduced to the mid-1990, coins were generally acceptable and widely used for payment of goods and services. But gradually, coins became less visible and acceptable.
Today they are almost extinct (Kayode Amolegbe, Vanguard, Wednesday 21st May 2014). Despite all the federal government’s efforts to make people accept coins, Nigerians are still nonchalant to comply. Many jingles have been produced and played on the radios and televisions to sensitize the people on the need to accept coins. All these jingles fell on deaf ears. There was a time the Central Bank of Nigeria (CBN) instructed commercial banks to be giving some amounts of coins to a certain amount of withdrawals to their customers. They did that for some time and relapsed. People give various reasons why they don’t accept coins. Some argue that the metal used to make the coins is so heavy, thereby making the coins too bulky to carry about. Others are of the opinion that the amounts denominated in coins are so small to buy anything. This makes coins insignificant and irrelevant in Nigerian economy; thus making those smaller denominations unavailable.
More so, the introduction of Automated Teller Machine (ATM) contributed in no small measure to the scarcity of the smaller denominations of naira. According to Solob (September 2008), Automated Teller Machines (ATM) was introduced into the Nigerian market in 1989, as a matter of fact, the very first ATM in Nigeria was installed by National Cash Registers (NRC) for the defunct Societe Generale Bank Nigeria(SGBN) in 1989. There is no gainsaying that ATM has improved the system of electronic payment in Nigeria but one aspect that is yet to be covered is the issue of dispensing smaller denominations. Majority of the ATM’s all over the country pays only in N1,000 note. Few pay in N500. One cannot get anything below these two naira denominations in any machine across the country.
Again, commercial banks are not left out as one of the facilitating agents of this scarcity of lower denominations of naira. According to Alhaji Abba Baba Titiwu, the Acting Controller of Yola CBN Branch, the attitude of commercial banks operators has constituted a harsh economic environment for small scale business men and women due to lack of lower denominations of naira in the market. In his own words “commercial bank managers will come to CBN and make a request for withdrawal of N100 million or more and they will say that they want only N1000 and N500 notes, if we insist to give them N100 and N50 or N20 they will give claim that the money is for ATM. But the question is which kind of ATM will take N100 million naira” (Emmanuel Ande, The Guardian, 28 March, 2014). Also, it is a common knowledge that “change” sellers (those that sell change) get those notes from commercial banks.
According to a report on DAILY Newswatch of March 19, 2014, One Oluwafemi Johnson accused bank managers of having a cartel running the business of hawking new naira notes for them. He stated that banks denied their customers new naira notes of lesser denominations and prefer to lease it out to their cartels at the bank to make brisk business. Besides the branch managers, it was equally gathered that the tellers in the banking hall perpetrate the same evil. The naira hawkers have deposits with the bankers and any time they go for withdrawals, the tellers pay them with new notes of smaller denominations. These currency hawkers can be seen in motor parks, roadsides, event centers etc. selling these notes.
The Central Bank of Nigeria, being the apex bank is not equally exonerated from blames as regards this problem of scarcity of smaller naira denominations. According to the Economist Nigeria (Wednesday, 10 April 2013), the Director, Banking Supervision of the CBN, Mrs. Tokunbo Martins disclosed that the apex bank was aware of the problems being encountered by the people on account of shortage of the lower naira denominations in the country.
She further said that the scarcity of the currency was because of the truncation of the CBN’s currency restructuring exercise. Number 9 Frequently Asked Questions about the Mint reads: “Q: Why is the Mint no longer producing lower denomination currency than N5; their absence drives up the prices of goods? A: The Mint produces based on demand from the CBN and cannot produce outside what the CBN requests” (www.mintnigeria.com). This emphatically means that the CBN no longer request printing of lower denominations from Nigeria Security Printing and Minting PLC.
The consequent effects of this scarcity of smaller naira denominations in the economy are innumerable and grievous. It reduces the gross turnover of small business, brings about social strife, compels impulsive buying, encourages wastages, induces corruption, impedes charitable acts and causes inflation. The owners of small scales businesses now complain about the drop in their total sales due to this scarcity. Nigerian Tribune of 17 May, 2014 reported of one Mrs. Celina Bitrus who sells roasted yam at the popular El-Rufai Bus Stop, Kubwa, Abuja. She complained that business has slowed down of late because of her inability to give change to buyers with higher denominations of naira. In her words “If this scarcity of lower denominations continues, I may run out of business.” Business operators miss so many sales due to inability to give change. Intending buyers do not have the time to waste with any seller who cannot give change (customer is a king)
Again, this scarcity leads to social vices like fighting and quarrelling. In the Punch of November 11, 2013. Abayomi Akinyemi Ige wrote an open letter to the CBN on this issue. An excerpt from the letter reads “ I wish to call the attention of the Central Bank of Nigeria to the dire scarcity of the lower denominations of naira from N10 to N200. This scarcity is causing tension in getting change for N500 and N1000 naira notes leading to abuses, hot arguments and fight among buyers and sellers”. Those who board commercial vehicles on daily basis can attest to this fact. More so, this scarcity compels impulsive buying. Most times, people buy what they don’t need or budgeted for just to get change. I can’t count the number of times I have bought sausage rolls in order to get change to pay for my transport fare. Also, when people buy things they do not actually need, they tend to waste them. For instance, people buy sachet or bottle water only to get change. Once they get these products, they pour the contents away.
This amounts to wastage of resources. Some people out of frustration leave their balance with the sellers. It is equally observed that not only trading entities face these hardships posed by scarcity of smaller naira denominations. Non-trading entities like churches and beggars also dance the same tune. Daily Newswatch of March 19, 2014 reports that an usher in one the popular Pentecostal churches in Island also claimed that change has become scarce these days and has affected Sunday service offerings. Even beggars bemoan this ugly situation as lack of change discourages people from giving them alms. This dearth of smaller naira denominations can bring about inflation.
The prices of goods and services have risen astronomically and if they persist, it becomes inflation. For instance, in Lagos, the distance that the transport fare was N100 is now N200 due to this problem. The prices of other commodities have also increased. Sellers buy change from money hawkers, they add up the cost to their goods and they pass it over to the buyers. If this trend is not checked; the resultant effect will be inflation. Nigeria is ranked 33rd most corrupt country in the world. This is according to the report by German-based Transparency International, TI.
Nigerian ranking will increase if we keep having only N100 and N500 in circulation. This will make it easy for the “looters” to move Ghana-Must-Go bags stuffed with N1000 notes. Nigerians cannot forget in a hurry how N2.1 billion newly minted N1000 notes developed wings and flew away from the Nigeria Security Printing and Minting Company (NSPMC) premises. Greatest height of corruption! Many businesses due to lack of change sell their products on credit. They keep selling on credit hoping that smaller denominations will soon come until they start running the risk of incidence of bad debt. This trend if not checked leads to bankruptcy.
The monetary authorities as well as Nigerians acknowledge the existence of this problem of scarcity of smaller denominations of naira. The question now is what can be done to curb this economic menace. Central Bank of Nigeria Act 2007 empowers the CBN to, inter alia, issue legal tender currency in Nigeria and promote a sound financial system in Nigeria. The law also mandates the apex bank to promote efficient payment system.
The Central Bank should review these statutory functions in the light of the present situation. More of smaller denominations should be printed than the bigger ones. Cashless transactions will take care of payments or businesses that warrant the use of bigger naira denominations; after all, the major aim of the Central bank now is to see the sustenance of a cashless economy.
Section 26 of the CBN Act, only permits the sale of the naira notes in exchange for foreign currencies but forbid naira exchanging for naira. This punishable offence in that law which stipulates that the culprit could serve some jail terms or pay some fines or both. This law is not being enforced in Nigeria. Law enforcement agents should wake up to their responsibilities. Even the police suffer from this problem as the little “change” they collect on the roads eludes them these days. The hawkers of naira should be arrested and prosecuted.
Also, the Automated Teller Machines (ATM) should be configured in such a way that they can dispense smaller denominations. Technology in Nigeria has really improved. If the machines can give N1000 and N500 notes, nothing will prevent it from paying lower denominations if they are automated so Central Bank should equally be conducting regular checks on the commercial banks and sometimes visit the banks unannounced in order to catch and apprehend those who take part in this naira trafficking (both tellers and the managers).
Moreover, the Federal government should embark on wide enlightenment campaign against hawking of naira notes. Educate the general public on the dangers and consequences of such act.
Finally, according to the Sun Newspaper of April 15,2014, CBN spokesman, Mr. Isacc Okoroafor on the sidelines of the Spring meetings in Washington DC,USA said “There is sufficient supply of lower denomination notes currently. We have supplied enough to the banks. In addition, all our branches have been directed to interface directly with members of the public including shop owners to enhance the easy circulation of these notes”. This piece of information is still on the pages of the newspaper as at the time of this writing as Nigerians have not yet felt the impact. Until then, this problem remains a very big danger signal to Nigerian economy.
Written by OHANABALU CASMIRE, Ohanabalu Casmire is an Accountant.