The Economics of Currency Redenomination: An Appraisal of Central Bank of Nigeria Redenomination Proposal

Abstract

On 14th August 2007, the Central Bank of Nigeria (CBN) through its governor made public its proposal to restructure and redenominate the naira by dropping two zeros or moving two decimal points to the left from the currency and issuing more coin denominations with a view to ensuring macroeconomic stability and efficient payment system. The announcement, which took many by surprise, generated a lot of debate among Nigerians and non-Nigerians within and outside the country. While some are of the view that the CBN deserves commendation for the bold step, others are condemning the entire proposal, yet another group try to synthesise the various views from political economy perspectives. Although, the scheme has since been suspended, stakeholders and observers continue to express their views and opinions about the desirability and timeliness of the policy. Accordingly, this paper appraises the suspended naira redenomination scheme in the light of its objectives. The paper is descriptive with presentation based on literature survey and desk analysis. The paper confirms that currency redenomination is based on some happenings within a country and its outcome depends on various fiscal and monetary policies aimed at stabilising the economy. It further posits that redenomination of the naira is not completely a bad policy despite the problems associated with it. It however, suggests that the new strategy should be thoroughly studied and understood, and should go beyond its psychological and portability effects; it should be associated with broader macroeconomic and fiscal objectives.