For years, Nigeria has been grappling with a depreciating national currency, the Naira. Its value has plummeted, leading to economic hardships and inflation.
A recent raft of policy measures to unify exchange rates have been welcomed by experts and investors – but feelers are strong that without a cash injection from the Central Bank of Nigeria (CBN), the naira could continue to freefall. And reports suggest that investors will continue to wait in the wings for the capital injection to fund foreign exchange demand of around $1.5bn.
Until then, the naira could devalue to as low as N1,000 (currently traded at 770.88) to the US dollar, a currency that’s facing enormous challenges and possibilities of being sidelined as the global currency exchange denominator.
With the Naira’s value declining rapidly against major international currencies, significant economic hardship for Nigerian citizens will be further worsened. In response to these challenges and need to save the Naira from further devaluation, I hereby propose a redecimalization of the currency, which entails removing three zeroes from the currency and creating new coins and notes of smaller denominations.
In the not-too-distant past, this idea was espoused by some economists including the then CBN Governor Mr. Charles Soludu as a solution to the woes of the Naira.
Redecimalization or redenomination as many prefer to call it, involves changing the face value of a currency without intricately changing its actual value. In the case of the Naira, this would involve reducing the number of zeros in the currency, making it easier to manage and reducing the risk of errors in transactions. For example, one thousand naira would become one naira, and one million naira would become one thousand naira.
Redenomination has been successfully implemented in other countries, such as Turkey, Ghana, Venezuela and Zimbabwe, where it resulted in increased confidence in the currency and economic stability.
In 2005, Turkey redenominated its currency, the Turkish lira, by dropping six zeros from its face value. The move was aimed at reducing transaction costs and increasing efficiency in financial transactions. The redenomination was successful, and the new currency system was widely adopted without significant complications.
Similarly, Zimbabwe redenominated its currency, the Zimbabwean dollar, in 2009 by dropping 12 zeros from its face value. The move was aimed at addressing hyperinflation, which had led to the devaluation of the currency. The redenomination was successful in stabilizing the currency and reducing inflation.
Our West African neighbours, Ghana redenominated its currency, the Ghanaian cedi, two years ahead of Zimbabwe by dropping four zeros from its face value. The move was aimed at reducing transaction costs and increasing efficiency in financial transactions. The redenomination was successful, and the new currency system was widely adopted without significant complications.
In 2008, Venezuela redenominated its currency, the bolívar, by dropping three zeros from its face value. The move was aimed at addressing hyperinflation, which had led to the devaluation of the currency. The redenomination was successful in stabilizing the currency and reducing inflation.
In all of these cases, redenomination was successful in achieving its intended goals, including reducing transaction costs and increasing efficiency in financial transactions. However, it is important to note that the success of redenomination depends on careful planning and execution, as well as effective communication with the public and financial institutions.
In Nigeria, it could potentially lead to a reduction in the cost of printing banknotes and coins, as well as increased efficiency in financial transactions. It could also help to increase the value of the Naira by making it more attractive to foreign investors, as well as helping to reduce price instability. Additionally, the introduction of smaller denominations could help to simplify financial transactions, and allow consumers to make more accurate payments when shopping. Finally, it could also help to reduce the amount of money in circulation and prevent counterfeiting.
Most significantly, redecimalization would effectively provide an overhaul of the current monetary system, allowing for more accurate and efficient trading. It would move the naira from a bi-decimal system (100kobo=1Naira) to a tri-decimal system (1000kobo=1Naira). This would prevent small value transactions from being rounded to the nearest whole amount, as well as make it easier to complete larger transactions using smaller denominations. As a result, redecimalization would lead to higher levels of economic efficiency and transactions, providing an immediate boost to the economy.
In addition, redecimalization is expected to reduce the cost of large scale financial transactions and create more equitable prices for goods and services.
However, redenomination alone may not be enough to solve the underlying economic issues facing Nigeria. The country will also need to address issues such as corruption, high inflation, and an over-reliance on oil exports. The government will need to implement policies that promote economic diversification and investment in sectors beyond oil, such as agriculture and technology.
Furthermore, the success of redenomination will depend on careful planning and execution, including the education of citizens and businesses on the new currency system, the coordination of financial institutions, and the management of the transition period.
While redenomination may provide some benefits to the Nigerian economy, it cannot be seen as the panacea to the nation’s currency challenges. The government must also implement comprehensive economic policies to promote sustainable economic growth and stability.
