Lagos Chamber okays currency restructuring, challenges CBN to relax monetary policy
WorldStage Newsonline-- Lagos Chamber of Commerce (LCCI) on Sunday called on the Central Bank of Nigeria (CBN) to relax its current tight monetary policy and risk management guidelines in order to improve access to credit and reduce the cost of fund in the economy.
The chamber in a statement signed by its President, Goodie Ibru on the proposed “project cure” comprehensive restructuring of the currency, said that it is time to focus on efforts to stimulate the economy and promote growth.
It also noted that the new currency restructuring of the CBN should be given a chance.
According to the chamber, "We are persuaded that the new currency restructuring initiative of the CBN should be given a chance. The policy should be seen as a policy response to current economic dynamics."
It said that the introduction of higher denomination should maintain an incremental sequence of N2000 and N5000 in line with historical trend and international best practice, noting that CBN should constantly ensure a proper alignment between the cash-less policy and its currency management strategy.
It also said that LCCI was aware that any economic policy has its costs and benefits, adding that to optimize the benefits, it is always important to be guided by the weight of merits and demerit of any policy reform.
On some of the key benefits of the proposed currency restructuring, the chamber noted that the currency restructuring would reduce the cost of currency management such as printing, movement, storage, counting and distribution. This would happen because introduction of higher denomination would mean reduction in the volume of cash in the economy.
"It will enhance portability and facilitate business activities of some segments of the economy where large amounts of cash are required, especially in the informal sector.
"It will reduce risk/vulnerability of cash carriers as higher value of cash can now be easily moved around with less visibility.
"It will enhance the capacity of ATM machines to store more money, reduce ATM stock out time and serve bank customers better.
"Facilitate the return of coin in circulation as some of the lower currency notes are going to be converted to coins. Of course, coins are relatively durable and our history of apathy on the use of coins is largely due to value consideration not the physical properties."
On the flip side, the new policy will likely increase the incentive for currency counterfeiting in the country. The risk of counterfeiting high currency denominations is high. It might also undermine the use of electronic channels for transactions to an extent
We did not buy into the popular conjecture that the proposed introduction of higher currency note will cause inflation.∙ There is no economic theory or empirical evidence suggesting a causal relationship between higher currency denomination, inflation and devaluation.
From the monetary stand point, inflation can only be induced by increasing money supply, or the stock of money in an economy. A new currency structure has no link with monetary expansion or contraction.
Monetary Policy Impact on Credit
Meanwhile, a more critical issue at this time is the impact of monetary policy on the current credit conditions in the economy. This is a more critical matter to worry about regarding the activities of the CBN. The tight monetary policy stance of the CBN, which has persisted for close to a year, is taking its toll on private sector productivity and sustainability. Interest rates of over 20% are unquestionably inimical to entrepreneurship development, wealth creation and employment generation in the economy.
Beyond that, access to such credits is even a much bigger issue because of the impossible conditions prescribed by the commercial banks. This, in our view, is more significant issues for which the business community should engage the Central Bank of Nigeria.