CBN should rescind decision on N5,000 note

Action Congress of Nigeria has asked the Central Bank of Nigeria  to have a rethink  on its plan to introduce the N5,000 note as the highest denominated legal tender in Nigeria by 2013, stressing that its demerits far outweigh the merit.

This was contained in a statement in Lagos on Sunday by its National Publicity Secretary, Alhaji Lai Mohammed.

The party warned that the introduction of this new high denomination might serve the dual purpose of raising revenue for government on the one hand, and reducing the cost of transactions on the other hand.

“The unintended consequences and collateral damage of introducing the N5,000 may far outweigh the benefits of the new measure,” it said.

According to the party, there is strong historical evidence that the introduction of higher face value currency notes in an economy often signifies a regime of increased and sustained fiscal deficit financing.

Also, the party said the issuance of such high value currency notes was likely to be perceived as an indication of government’s failure to effectively control inflation. ACN said, “Unfortunately once this perception takes hold, increased inflation expectations can be built up quite rapidly and these have pushed many countries into a situation of hyper-inflation in the past, which has typically culminated in the redenomination or even complete abandonment of the entire currency system.”

The party stated that the issuance of the N5,000 currency note ran counter to the recent policy of the Central Bank of Nigeria to promote a “cash-less” economy by encouraging the increased use of non-cash transaction instruments.

The statement said, “The issuance of the new N5,000 currency note also runs counter to the government’s often repeated commitment to fight corruption. It is widely recognised that large scale corruption tends to be facilitated by the ease with which unrecorded and large cash transactions can be made.”

ACN added that the introduction of the denomination would lead to increased illegal/criminal, drug-related and terrorist activities as money laundering was known to be facilitated by such unrecorded and large scale cash transaction.

The party said, “The ease with which the new N5,000 currency notes can be transported will make it an ideal instrument for the facilitation of these undesirable activities.”  It added that the close relationship between inflation and the issuance of high value currency notes is perhaps best illustrated with real life experiences of a number of countries.

“Between 1975 and 1991, Argentina experienced a period of inflation during which increasingly higher face value notes were issued.”