LAGOS, Nigeria – Nigeria is set to unveil a bank note five times more valuable than its largest denomination bill as part of a major overhaul to its currency, a change some worry will further speed devaluation of its currency and hurt the nation's poorest.
The addition early next year of a 5,000 naira note, worth $31.25, comes less than a decade after the country introduced a 1,000 naira note. Over that time, the worth of the naira continued its long slide and likely will continue to drop, analysts say. The International Monetary Fund issued a report in July suggesting the naira was overvalued by as much as 8.5 percent, an opinion rejected by Nigeria's Central Bank.
In announcing the new denomination, Central Bank Gov. Sanusi Lamido Sanusi said the new 5,000 naira bill, as well as changing notes from 20 naira (12 cents) and lower into coins, would help the country's economy by providing a "befitting currency structure."
Currency troubles have haunted this oil-rich nation for decades. After independence in 1960, Nigeria pegged its naira currency against the value of the British pound and later the U.S. dollar. High oil prices boosted the naira's value on par with the dollar and the nation's largest bill for years remained the 20 naira note with the image of assassinated military ruler Gen. Murtala Muhammed. However, the collapse of oil prices in the 1980s saw the value of the naira retrench as officials implemented unpopular monetary reforms that saw the naira begin its drastic drop in value.
The 5,000 naira note proposed Thursday by Sanusi does have logistical upsides. Large purchases in Nigeria often involve bricks of 1,000 naira ($6.25) notes carried around in black plastic bags. Banks throughout the country must have "bulk counting rooms," where tellers wearing surgical masks run piles of bills through counting machines. Bank ATMs also can quickly run out of cash over weekends. Sanusi himself noted the higher-value notes will mean there's less currency in circulation throughout the country.
However, some worry that the new note will spark inflation and other problems.
"The emergence of the 5,000 notes will be the fifth time in 13 years of introducing new denomination notes, which invariably accelerates the disappearance of low denomination notes and coins and engenders an inflationary push," an editorial published Friday in The Guardian newspaper warned. "Large denomination notes encourage cash hoarding, a profitable boon to counterfeiters and a windfall to corrupt practices."
In remarks Thursday, Sanusi said that "inflation in Nigeria is a monetary phenomenon," while pointing to the nations of Germany, Japan and Singapore as nations with large denomination notes and low inflation rates. However, those nations have manufacturing bases unrivaled by Nigeria, which has a weak industrial sector and remains almost entirely dependent on crude oil exports for government spending.
Changing smaller denominations to coins represents a risk as well. Sanusi acknowledged the "public apathy" that greeted coins already in circulation. By making up to 20 naira a coin, there will be pressure among those in Nigeria's informal economy to raise prices to avoid accepting the coins, said Adeola Adenikinju, an economist at the University of Ibadan. That could mean rising prices on everything from tomatoes in the local market to rides on the motorcycle taxis that ply the nation's congested streets.
In a nation where most earn less than $2 a day, that could be a tremendous pinch on pockets.
"I think the central bank is trying to indirectly devalue the currency," Adenikinju said. "I think it will also have an inflationary effect that will affected many ... Nigerians who are in the informal sector and are on fixed salaries."
The effect the new currency regime could have on those selling goods in the many local markets that dot Nigerian cities and villages comes as one of the three women to be honored on the new 5,000 naira note is Funmilayo Ransome-Kuti. Ransome-Kuti, the activist mother of the famed Afrobeat singer Fela Anikulapo-Kuti, led her first major protest against price controls that hurt the lives of market women.
Jon Gambrell can be reached at www.twitter.com/jongambrellap.