Bringing The Kobo Back...
By now you already heard Prof. Soludo's (ignore the rants of the reporter) I find it interesting how many commenters (fishy word) have turned into overnight monetary economists. Also there ought to be a mass education session organized for our journalists. Is this just pure hype for the sake of making the news or these journalist do not understand arithmetic. Whew, I have been on rantpage recently I still can't get over the U.S. economy's mood swings. Prof. Soludo's has one of the hardest jobs on this planet. What if the Naira was to recalibrate using some other factor like 97, the whole country would have shut down.
The only valid reason the Prof. gave was the referencing argument. Beside this all other adjustments are nuances. A writer mentioned the ease with which bribery in high places will be carried out. I do not think this is valid since only the N20 bill will be added to the existing set.
Thank God, Nigeria will not end up being the first country where a public official will be caught stealing a bajillion Naira.
Winner: The Kobo
Losers: The Nigerian Millionaire's ego.
Some other related blog entries;
: What is the exchange rate of one US dollar to Japanese Yen or Chinese Yuan?
My response: What is worth doing at all is worth doing well, believe me if the Chinese and the Japanese had their way to carry out a overhaul of their economy like the opportunity presented to us by our slow-to-wake up economy, they'd change the calibration of their currency too. But since the gains from carrying out this exercise is little and they are quite far gone in the scheme of things. They've allowed sleeping dogs lie. How would you like to receive the daily reports with the Yen as the reference currency. Same data double headache. As for the bankers talking about curbing inflation, yes the psychological part of inflation . Economist care very little about inflation (note not hyper-inflation) in the first place only politicians do.
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13Comment(s):
"Winner: The Kobo
Losers: The Nigerian Millionaire's ego"
Loving it! :)
So much money spent, in introducing the 50NGN bill already...even in introducing the 1000NGN bill, now the way to go is this?
Wrong move...
And why is that sir..............
"What if the Naira was to recalibrate using some other factor like 97, the whole country would have shut down."
lol!
True, but I'm with Nilla, why spending all that money introducing new Naira bills only to then get rid of them in the next year and a half?
That seems inefficient and wasteful. Something Nigerians are good for. Nevertheless, you kow my view on the re-denomination of the currency. I continue to hope all goes as planned...
Thanks for sharing your insight on the matter with me at Imnakoyas...
@Solomonsydelle you are welcome. Nilla point is really bright, we are indeed good at that poor planning thingie, hence my next post.
I don't think we need all the fancy economics in Nigeria...we always like complicated stuff. I don't even think we need economists... :)
Something you left out is transaction costs. For banks, cash is one of the main cost drivers they have. If you've walked into a Naija bank you see that right from the bullion operations, to treasury, to hours spent balancing accounts at day's end, handling the bulk of the naira has a serious cost effect.
There are other things of course. Vending machines and automated transactions of all types including car parks are almost impossible if you have to handle several large bills.
You might say the exact number of notes would be used but you would be very wrong. Much fewer would be used.
There are so many other benefits. This process also allows the Central Bank to get a bit more control over currency in circulation for the simple reason that people who already hold currency would have to refer to the central bank to make the conversion.
For controlling inflation and brininging the informal sector into the light, the effects would be extraordinary.
There are even more benefits. Even for the people who carry cash. Just being able to carry large amounts of cash in minimal space would be extremely convenient for anybody, and this is not to be disregarded.
Of course it's going to turn a lot of millionaires into "thousandaires" but it would also make it clear to each and every one of us what life costs in Nigeria where graduates still earn 15000 a month.
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@Seyoyo thanks for coming back, but hmmmmm you are wrong sir. The gains you are talking about will be equivalent to printing a 2000 Naira note and that is all. Your arithmetic is a bit off on this one.
Lets say you wanted to buy a million Naira car, today you would need, exactly 1000 notes of N1000 bills. Come August if you wanted to buy the same car it would cost you N10,000 and you would need exactly 1000 N10 Naira bills. The only possibility is 500 N20 bills. so you see the number of notes carried is the same shey.
No space saved at all.
How you see am?
There's more to it than that. You need to compare like with like (ponmo with ponmo). Your million naira car example would be more accurate if you compared 200,000 5 Naira notes (smallest denomination under old system), with just 20000 50 kobo notes (smallest denom) under the new system.
Also you ignored the effect of reining in all currency in circulation, allowing the CBN to know just how much naira is in circulation, and bringing huge swathes of the black economy into the light. The effect of knowing exactly how much is in circulation is much more precision in the economic models for controlling inflation and interest rates and exchange rates. These are not insignificant benefits.
www.200milesup.newsvine.com
Omodudu, I didn't know you had blogged about this ... although I would have been surprised if you hadn't. Personally, I think we'll lose more than we'll gain. All we are gaining is a beautification of figures, and we'll once again expend a lot of money and resources in this exercise. Also there's bound to be some losses, people will rush to buy or liquidate shares and that will have some implications. Will shops adjust their prices accurately or they'll round up to favour them? What about Market Women? Who will explain to them how to calculate? Some semi-literate people will end up paying 100 times the normal price for some goods and both buyer and seller will be ignorant. These are just a few implications. All for what? So the naira looks good?
BTW, looking good is not the same thing as being good. If the root cause is not addressed, the decline will resume ... and in another 20 years, the dollar will again exchange for N125.
@Tayo this is where you have to trust the CBN, I am sure they have done their cost benefit analysis, for them to move forward with it then it must really make sense to them. Most of the worries and comments stem from the distrust of the CBN.
I am glad you see there isn't any real implication to the economy. All effects will be as a result of rounding errors and other minor transaction errors.
Since the change was not carried out to combat inflation, I do not get the inflation argument sha. How body how is it going?