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Bullion

Keywords

Currency management, Currency re-denomination, Nigeria

Abstract

In the view of the Bank, redenomination policy for Nigeria was not to translate to revaluation, as market forces were to continue to determine the prices, including interest rates and exchange rates, with the expectation that inflation will be low while exchange rate will appreciate. The objective of this paper is to articulate the reasons and conditions under which countries embark on currency redenomination exercises, and how successful these exercises had been over the years. The paper is descriptive with presentation based on literature reviews. Under the redenomination programme, banknotes were to be issued in denominations of new 50k (old N50), new N1 (old N100), new N2 (old N200), new N5 (old N500), new N10 (old N1000); that is dropping two zeros, while a new N20 would have b e e n t h e h i g h e s t c u r r e n c y denomination in Nigeria. Although the Government explained that the suspension was without prejudice, most analysts argued that the redenomination exercise was within the mandate of the CBN. The paper articulated the reasons and conditions under which countries embark on currency redenomination exercises. It found out that the explanations on currency redenomination exercises rest on both political and economic factors such as national/peoples' identity, credibility of national currency, domestic/international developments, nations' sense of pride, monetary sovereignty and psychological effects. Others include inflation level, macroeconomic and fiscal reforms, regional and sub regional economic interests, government's time horizon, the governing party's ideology, the fractionalization of the government and the legislature, and the degree of social heterogeneity of the particular country.

Author Bio

Peter Nwaoba is a staff of Central Bank of NIgeria, Abuja.

Publication Title

CBN Bullion

Issue

4

Volume

34

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