See these people. In less than one decade, the mandarins in the hallowed portals of the Central Bank of Nigeria are about to reverse themselves, and the fabric of the naira from polymer back to paper. Deputy Governor, Tunde Lemo, announced that the CBN has halted printing of lower denominations in polymer, and will release the new paper notes by mid-2013. Something akin to the way you rest a newspaper title and introduce another. See how Nigeria’s economic managers flip policies at will, the same way a capricious woman changes her mind. And, all this, at the expense of the mute taxpayers.
Lemo says that the policy change came because the Nigerian public was against the introduction of the N5,000 denomination notes. Hardly a smart explanation. But he gave a more plausible and honest explanation with the admission that they found out that though polymer may last longer, it fades easily. But also in the classic Nigerian cop-out mode, he rather blamed the wrong handling of the naira notes by Nigerians, than the inadequacy of the polymer technology. Shouldn’t they have factored in the possibility of rough handling before polymer was adopted in the first place? Lemo reminded Nigerians that it is criminal to step on the naira, or paste it on sweaty foreheads of musicians and dancers. Fair enough, but how the sale of the naira defeats the clean note policy of the CBN is not too clear. Doesn’t it stand to reason that the law that allows the sale of foreign currency must accommodate the sale of the naira?
Throughout the history of commerce, varied kinds of mediums that have been used as currency include coins, paper, cowries, silk, velvet, linen, khaki shirts, leather, wood, sealskin, and even playing cards. The Chinese introduced paper money made from mulberry, but most countries now use cotton-paper. It was Marco Polo who saw paper money in China, and brought the story back to Europe in the 13th Century. Bank notes or paper money, were originally issued by commercial banks, as a note with a promise to pay the bearer on presentation. J.L. Hanson’s "Introduction to Economics", a standard textbook for secondary school economics students in the 1960s and 1970s relates its own Anglocentric legend of the origin of bank notes. It says goldsmiths, who kept gold trinkets for the wives of the wealthy in England, usually gave handwritten notes to depositors, who would have to present the notes, personally, or through proxies, before they could retrieve their jewellery. And, as the notes began to change hands, it began its journey to becoming a medium of exchange. The text adds that this was how the gold standard was evolved as backing for paper money. Nowadays, currencies — notes and coins — are issued by central banks, but are produced by government mints or private printers with specialised skills and equipment.
The greatest problem of the currency is counterfeiting. Colour photocopiers and image scanners have increased the incidence of counterfeit notes — derisively referred to as funny money or superdollars. In forensic circles, funny money is printed by criminals, and definitely without the legal sanctions of the state. It is usually spent using large denomination (of say N1,000) to buy goods of little value (say N50) in order to obtain high change (say N950) of genuine money. The idea is to use fake money to harvest genuine money that is in circulation. Counterfeiting undermines the credibility of a currency; reduces the value of real money; causes inflation by causing too much money to be in circulation; decreases the acceptability of money; and causes losses of money to those who receive it. The strength of the polymer is that it is difficult to replicate by forgers. It is made from a tightly controlled recipe developed in 1966 by David Solomon of Dulux Paints, Australia. Fake polymer currency is easy to detect. It simply tears into two if the two edges are pulled in opposite directions by a quick snap. And that is the medium that the CBN wants to phase out.
Even though polymer can prevent counterfeiting, the Nigerian experience shows that it fades easily. But typically, bank notes do not last much longer than three years. They always suffer from wear and tear from handling. But should the CBN prefer exposing the naira to the dangers of counterfeiting over the possibility of aesthetics or hygiene? Shouldn’t the CBN intensify campaigns at persuading Nigerians to handle the polymer notes with better decorum? Tell people to avoid creasing, crumpling or stapling them, in addition to researching for the technology that can improve its handling. Just like any other medium, polymer notes should be handled with care. Reports indicate that polymer notes have a shelf life that is nearly three times longer than the paper notes that the CBN prefers. Polymer notes, like other bank notes, are light and can be issued in higher notes, but are more expensive to produce, and have a higher rate of rejection (than coins) due to high rate of wear and tear. But these issues of poor handling, counterfeiting, globalisation, prevention of money laundering, and introduction of digital technology have rapidly migrated money from the physical M1, M2 to the electronic portals of credit cards, debit cards, electronic money transfers and the good old cheque book.
Apart from reverting to a less durable, if more aesthetic, paper fabric, and exposing the naira to the danger of counterfeiting, the CBN is spending too much public money on changing of the naira from paper notes-to-coins-to-polymer-to-notes ad infinitum. In addition, the instability of the naira may affect its economic importance as staple hard currency of the West African region. It is rumoured that some Americans are rejecting some dollar notes because they bear dates prior to a post mark date that they have arbitrarily chosen. Can you imagine the damage this is causing to the informal, flea market, cash-and-carry sector of the American economy? Americans now have to stare hard at the dollar before accepting it. If this seeming small palaver could cause some inconveniences to the American economy where cash is used for less than 10 per cent of transactions, consider the impact on the essentially cash based Nigerian economy. The rejection of the naira would have the same effect as a CBN monetarist policy of mopping up cash from circulation. You know what happens when less money is chasing too few goods. To carry it to a more ridiculous extent, the CBN must soon establish a hotline for people to check if the polymer or the paper note is the legal tender at any point in time.
You will appreciate the effect of frequent change of currency with the following true stories: Sometime in 1984, naira notes, stuffed in 61 suitcases, were allegedly hurriedly brought into Nigeria to beat the deadline set by the capricious Buhari Government that changed the currency. Many who stuffed their naira in their mattresses — at home or abroad — lost a lot during that exercise. Biafra bears witness to the effect of the sudden change of the Nigerian pound during the civil war. The Nigerian pound held by the people and government of Biafra suddenly ceased to be legal tender, and became worthless because they could not exchange it for the new Nigerian pounds. This brought ruination to the Biafra war chest, and savagely depleted its ability to prosecute the war. For want of the right currency, the war was lost. But worse, for want of the right bank notes, the naira and the economy may be lost to counterfeiters.
