Where are the coins?

Nigerians will recall the extensive and certainly expensive media

blitz for the promotion of public acceptance of the new generation of

coins introduced into our currency profile in the first quarter of

2007!  The new coins were in replacement of the long moribund

denominations of N1, 50K, 25K, 10K and 1Kobo issued by our Central

Bank in 1991, at a time when the naira had begun its freefall soon

after the ill-advised Structural Adjustment, and the series of naira

devaluations that accompanied that IMF-induced programme!  However, in

spite of the decreasing purchasing power of the naira, the 1Kobo

denomination still commanded some value and was still accepted for

transactions and change in the market at that time.  The naira's crash

from stronger than parity to the dollar to about N120=$1 sounded a

death knell not only for the 1k coin, but for all coins in our

currency profile, as N1 soon purchased less than the 1Kobo value of a

few years earlier!
Consequently, the higher note denominations of N5, N10, N20, N50, were

adopted for the traditional roles associated with lower denomination

coins!  These notes were thus subjected to such rapid turnover that

they became as unattractive as dirty underwear with an offensive odour

and grime laden with severe mutilation.  Besides, simple transactions

became problematic because of the problem of change, and many

unnecessary battles were fought between customers and merchants as a

result of inability to provide ready change!
Consequently, the CBN in recognition of the vital role of low

denomination coins in ensuring price stability and competitiveness

reissued the N2 note as a coin alongside new issues of 50K and N1

coins in the first quarter of 2007.  Meanwhile, the older coin

denominations of 25kobo, 10kobo and 1kobo were quietly withdrawn from

the system as their infinitely small purchasing power made them

useless for transactions.
Today, my attention was drawn to a CBN advertorial titled 'INVITATION

TO BID FOR THE PURCHASE OF DEMONETIZED COINS' in the Friday, 6/8/2010

edition of the Punch newspapers (page 56).  The advert indicated that

over 489 million pieces (2806.5 MT) of the 1991 design coins were up

for sale at the monetary face value of the coins; i.e. a sum total of

about N194.5m or approximately N69,304/MT ($462/MT).  In the event

that the cost of coins become minimal, when amortized over, say, 40 -

50 year usage or life span, it is apparent that current market price

of about $8000/MT for Nickel and $6000/MT for copper, which form the

major components in coin production maybe clear indication that these

demonetized coins are being offered at a bonanza price!

However, the real question is whether or not the new coins introduced

in 2007 with so much fanfare and promise at great public expense have

fared better than their 1991 older cousins.  Well, the answer is there

for all to see or not to see, as the case may be, since the N2, N1 and

50K  2007 design are totally absent from the market, and even CBN's

instruction for banks to carry a small portion of their daily

transactions as coins has not encouraged their public acceptance!

In our article titled 'HURRAY! THE COINS ARE BACK, BUT…', 26/02/2007

in this column, we cautioned that CBN's euphoria on the introduction

of the new coins would be misplaced since the process failed to

recognize the critical significance of value in public acceptance of

currency denominations, and predicted that the adoption of the coins

will be short-lived.  I hate to say this column has again been proved

right, as these coins will inevitably also be auctioned well below

cost!
The following is the full text of the referenced article.  Please read on.

'In our article of  7/3/2005, titled 'HOW THE N1000 NOTE WILL AFFECT

YOUR POCKET', we evaluated the merits and demerits of high currency

denominations, and concluded that a combination of an expanding cash

surfeit and inflation are the major responsible factors for the

issuance of higher and higher currency denominations, which command

less and less values!  In other words, resort to higher currency

denominations above the 100 unit secondary note is generally a symptom

of the failure of the management of a country's economic and monetary

policy and the resulting fall in currency value will inevitably make

redundant the use of primary units of coins in that country's currency

profile!  So it was with our sister country, Ghana , where C5,000,

C10,000 and C20,000 notes were issued to facilitate the carriage of

huge volumes of cash with relatively little value!  (Note: C10,000 =

N130 = $1).  As you can imagine, if C20,000 is equivalent to only

US$2, sooner than later, the Ghanaian authorities would have had to

issue one million cedi notes if they wanted a single note value

equivalent of say the US$100 in their currency profile and there can

be no role for worthless primary pesewa (Ghana's kobo) coins in such a

system, as 1pesewa = $0.000001 (a millionth part of a dollar)!

'The same need for portability of a badly depreciated naira led to the

introduction of the N50, N100, N200, N500 and N1,000 notes in Nigeria

in the last 20 years!  However, in the event that our highest currency

denomination, the N1,000 note, is the equivalent of only about US$8,

it is not inconceivable that we may require a N10,000 note if we wish

to improve portability and facilitate cash transactions with higher

value currency denominations.  As in the case of Ghana , it is not

difficult to see why primary kobo coins disappeared from circulation

in Nigeria ; our 1kobo=US$0.008 i.e. (less than 100th of a cent)! It is

virtually impossible to find a product sold for N1 in Nigeria today!

'However, the downside of such a currency profile is the inherent

inflationary push that comes with the prevalence of high

denominations.  The N1 and N2 notes are hardly seen any more, and the

N5 and N10 notes, where found, are repulsive to customers because of

their dirty, moist and unhygienic physical condition!  Inevitably,

manufacturers, traders, petrol pump attendants, etc, succumbed to the

adoption of N5 or N10 denominations as the minimum cost of their

products, and consumer goods and transactions were priced with a

minimum value of N10, as change would not be available for commodities

priced for less!  The inflationary spiral and wasted value inherent,

everyday, in millions of transactions where values were rounded off to

the nearest N10 must be mindboggling!
'So, the reintroduction of the N1 and N2 and the 50kobo coins by the

Central Bank must certainly be a very welcome development for

manufacturers, traders and consumers alike, and their availability

would be expected to dampen the upward price push, which the absence

of these denominations brought about.  Thus, prices can be expected to

be more competitive and the often forgone change at petrol stations

and other consumer mass markets can now be recovered and the usual

attrition related to such transactions in the past will be avoided

with positive impact on the health disposition of more and more

Nigerians!
'However, the question that will agitate the minds of Nigerians is

whether or not the new currency denominations will work this magic,

and how eagerly the new denominations will be adopted for facilitating

the settlement of transactions.  Can we truly expect consumer price

structures to change favourably with the reintroduction of these

coins?  Certainly, the three sets of coins, 50k, N1 and N2 will be

more hardwearing than the extinct note equivalents and will therefore

successfully endure the indignities that made the erstwhile notes

unattractive and unhygienic to hold.  The CBN has indicated that 2% of

all currencies supplied to any bank will be in the form of coins, so

as to guarantee availability in the market at all times (Guardian of

23/2/07 , pg 15), how long this liberal coin policy can be sustained is

another matter!  You see, the coins are made from semi precious metals

such as copper, nickel and bronze alloys, and the cost of production

of each coin is probably many times over the face value of the

currency; this is not surprising really as N1 for example, is 130th

part of $1 or better still, less than one US cent having depreciated

from N1=$1 over the years.  The economic wisdom in coin production is

in the long lifespan of coins (coins can last over 50 years usage!)

The relatively high initial production cost can be amortized

profitably over its lifespan, but that is assuming that the coins are

available and remain in use.
'If, however, the coins disappear or receive the undue patronage of

makers of jewelry, gift items, modern art, etc, both at home and

abroad, the lifespan of the coins will have been truncated on the

altar of commercialism, and our CBN may unwittingly end up funding or

indirectly subsidizing the cost of finished products made from

Nigerian coins which have been melted and recycled!  If this scenario

becomes reality, then, the new currency profile, including coins may

die a premature death and our expectation of a damper on inflation or

the facilitation of change for consumer purchases may become

unrealized; meanwhile, Nigerians would have wasted the economic cost

of production (running into billions of naira) and the additional cost

of promoting the acceptance of the new currencies!
'From the above, it is clear that the simple act of reintroduction of

these coins may not on its own favourably affect the pricing

structure, the major militating factor against this expectation is the

purchasing power or what product value can be exchanged for say the

50k, N1, and N2 coins!  This fact has recently been recognized by our

neighbours in Ghana , who will, as from July this year, (2007)

redenominate their currencies in order to give the lower primary

denomination units more value and encourage their adoption. Ghana' s

Central Bank is knocking four zeros off the currency denominations now

in circulation; thus, the C10,000 note which had fallen in value over

the years to become equal to US$1 becomes C1=$1 as from July 2007!  In

this manner, 1 pesewa (like kobo denomination) will become equal to US

1 cent in place of Nigeria 's own N1=US$0.008 while our 1 kobo is much

less than 100th of a US cent!  If our own CBN puts pride aside and

borrows the common sense approach adopted by our Ghanaian brothers,

the reintroduction of the new coins will become easily adopted even

without any encouragement from the authorities and their inherent

monetary value would work against their meltdown and recycling by

hustlers and the desired objectives in reintroducing these units of

currency will be achieved and succour will come the way of the

masses!'
SAVE THE NAIRA , SAVE NIGERIANS!  
  LES LEBA