WHERE ARE THE COINS?

BY: LES LEBA

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denominations of 25kobo, 10kobo and 1kobo were quietly withdrawn from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

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