Polymer Currency: Waste, Deceit & Commonsense

The concept of moral hazard is defined as a situation where there is a tendency to take undue risk, because the costs are not borne by the party taking the risk.

Apart from the recent IMF advice to wind down AMCON because of the threat of moral hazard, the policies and strategies of government Ministries, Departments and Agencies, particularly those of the Central Bank of Nigeria are fraught with moral hazards. However, in this article, we will discuss the production and adoption of polymer currency notes and coins as an illustration of the odious implications of such decisions.

In an article titled “Polymer Currency: Waste, Deceit and Commonsense” in November 2009, we discussed issues relating to CBN’s misguided currency strategy; a summary of that article is as follows:

After a frustrating and fruitless attempt to
spend his cache of coins, Veteran Journalist, Bisi Lawrence, in a piece titled “O to Spray Again” in October 2009, lamented that “I also knew why the coins were, so to say, unmovable; it was because they were in naira denominations, which had practically become without value.

I recall that one Kobo (coin) loaf of bread was enough for breakfast when I was young, and I also remember that young women almost dislocated their wastes while dancing at parties for the joy of being appreciated with a 10 Kobo piece”.

However, Lawrence also recognised the inevitable truth that “we need these coins in our commercial life, because they last much longer than currency notes, and they are so adaptable because they can be (applicable for slot machines) for sundry products”, and he therefore concluded that “we really need to increase ‘their’ value, and there is nothing stopping us”. I couldn’t agree more.

Paradoxically, in denial of Bizlaw’s commonsense observation on the significance of value, the former CBN Governor, Professor Soludo issued, the almighty N1000 note (about $8) in 2006, and later that year, also issued new 50K, N1 and N2 coins into our currency profile because the existing paper forms had become cumbersome and filthy, and were generally rejected by all, including the ‘lowly’ street beggar, because they had no value! Predictably, the fresh-minted coins were equally rejected just like the note forms because they were virtually worthless.

In desperation, Soludo directed without success that all the banks must accept at least 2% coins component in their currency supplies from CBN, while over N10bn of taxpayers’ money expended on a massive enlightenment campaign, still failed to encourage the public to embrace the freshly minted but worthless coins.

In another article in February 2007 titled “Hurray! The Coins are Back, But…”, we noted that “the economic wisdom in coin production is in their long lifespan (over 50 years)… and the initial production cost can be amortized profitably over its lifespan. If however, the coins are rejected because of low value, then, the new coin profile will be rejected.

Ultimately, CBN admitted, three years later, that the introduction of coins was misguided, and consequently withdrew and publicly auctioned them at less than one-tenth of production cost! In October 2009, as if in demonstration that CBN has not learnt its lesson with regard to profligacy with public funds, the N5, N10 and N50 denominations introduced as new paper issues in late 2006 were again reissued on much more expensive polymer material!

The introduction of these imported N5, N10, N50 polymer notes in addition to the existing N20 note of same fabric, definitely ran counter to the canvassed merits of security and the cost effectiveness of committing billions of naira to upgrade the CBN-controlled Nigeria Mint and Security Company!

Again, what a waste and loss of job opportunities for some of our countrymen! Incidentally, (see Punch editorial 8/10/2009) Securrency, the Australian beneficiary printing company has lately been accused of giving bribes of over US$6m to the proxy of some top Nigerian government officials to win the 2006 polymer notes contract.

Nonetheless, the alleged superiority of these polymer notes were extolled in CBN publicity campaigns as being “user-friendly; look better and remain crisp over a long period; do not stain, rumple or tear easily”. CBN also claimed that “polymer notes will save the nation huge sums of money used for reprinting”.

However, the actual experience of Nigerians, as noted in our article “The Putrid Mess Also in CBN – 3” of 28/09/08, is that polymer notes fade and peel easily, especially when they are wet or folded, and they shrivel with heat contact.

Paradoxically, In April 2013, Dr. Tunde Lemo, a CBN Deputy Governor, confirmed that the apex bank would once more scrap these polymer notes, because their poor quality contradicts the result of CBN’s earlier research that polymer notes were superior to paper notes.

Lemo also confirmed that the contract for the printing of new paper notes has been awarded once again to another foreign company because of the unexpectedly limited capacity of the ‘modernized’ Nigeria Minting and Printing Company! Inevitably, billions of naira will once again be wasted in promoting public acceptance of paper note denominations, which will again fail to fulfill the functions of primary kobo coins.

As before, CBN is once again in denial that currency acceptability is primarily a function of value; for example, the erstwhile worthless Ghanaian primary pesewa coin (similar to kobo) has become desirable for transactions and change since Ghana’s Central Bank redenominated/redecimalised their currency to give the cedi, more value. Nigeria will inevitably have to follow suit, if Bisi Lawrence’s hope of ever spending kobo coins is to materialize.

Regrettably, no one in CBN or elsewhere has been sanctioned or penalized for the odious impact of these haphazard decisions on our currency profile, and our prostrate economy.

SAVE THE NAIRA, SAVE NIGERIANS.