Kobo, the 1/100th of Nigeria’s naira, usually in coins, is seldom in circulation. As inflation takes its toll on the country, ONYEKORMAKA ASABOR writes that the absence of this part of the nation’s legal tender may be a contributory factor
Across world economies, coins are usually issued to ensure a balance in the currency structure, unit of accounts and to ease transactions. Those who refuse to use them face sanctions.
But in Nigeria, the reverse seems to be the case, as aversion towards coins gradually manifested so much in the past that the government was compelled to embark on currency re-structuring, unarguably to address people’s attitudes towards the kobo. The restructuring continued, to the extent that the then military administration issued a new N50 bank note and converted 50 kobo and N1 bank notes to coins. Many Nigerians saw it as an attempt to make the lower denomination unsuitable for transaction.
Expediency of currency restructuring
In fact, when the Central Bank of Nigeria, at a time, moved to reverse the then prevailing aversion towards the kobo, it stated, “In line with international best practices, countries review their currency structure every five to eight years. Nigeria has not reviewed her currency structure since 1984.”
On February 28, 2007, as part of the economic reforms under Sanusi Lamido Sanusi, then governor of CBN, re-issued N50, N20, N10 and N5 bank notes with new designs, as well as the coining of N1 and 50k, while a new N2 coin was introduced. Nigerians, however, demanded from the CBN what it expected citizens to buy with the coins.
Some argued that Sanusi should conclude the ‘good work’ he had started by producing goods to be purchased with the coins, as a 500ml sachet of water (popularly called ‘pure water’), at the time, was sold for N5. Today, in most parts of the country, the same sachet goes for N20 or three for N50. Though some considerate retailers still sell at N10, as wholesalers sell a bag of 20 sachets at N150.
In the same vein, in a seeming recognition of public rejection of lower naira denominations for daily transactions, the CBN, in 2019, reportedly embarked on a project designed to mop up mutilated bank notes from the market. The then CBN Deputy Governor, Operations, Folashodun Shonubi, announced, in April 2019, that the CBN was putting in place strategies to enable “direct disbursement of lower bank notes to various market associations and merchants through their respective Deposit Money Banks, to eliminate unfit and counterfeit currency from the system, to sustain public confidence and preserve the integrity of the national currency, as enshrined in Section 2 of the 2007 CBN Act.”
How absence of kobo fuels inflation
Experts agree that the absence of low denominations of legal tender exacerbates inflation, due to the drum and ripple effect.
An economist, Fred Onyekozuru, described the absence of coins in an economy as one of the factors that exacerbate inflationary situation. Buttressing his view, he said, “Coins are important in any economy, as they facilitate transactions and reduce the tendency to approximate the prices of goods and services to the nearest currency notes.
“Coins break down high currency denominations to smaller bits, which dampen undue inflation, as the consumer must collect his/her balance.”
He continued that prices of items are high because the seemingly negligible amount consumers often overlook have been added to the total price.
“This is made worse by some sellers would not give buyers such small balance, and some customers who do not also ask for it,” he added.
He noted that even when the customer demands their change, it is not always available, forcing them to leave it or buy what they never intended to buy, just to make up. “On its own, this has added to undue price increase.”
Samuel Olayiwola said, “There are many ways absence of coins in an economy can fuel inflation. For instance, supermarkets are compelled, or rather tempted, to deploy psychological pricing. For instance, an item that costs N5,000 could be tagged N4,999 in the store.”
Unfortunately, as Olawiyola explained, consumers appear to favour round numbers when paying for goods and services.
Against the foregoing, he advised managers to consider consumers’ overwhelming preference for whole-naira amounts or round figures when setting prices.
He added that the trend is irrefutably affecting day-to-day business transactions, as the absence of kobo coins in circulation has resulted in prices being rounded, and cited a situation where goods that could have been sold for N8 would rather be sold for N10. Reason: there is no N2 change for someone, who might have dropped N10 for such item.
“The result is people overpaying for goods and services; a scenario economists term inflation,” he added.
Bringing back the coins
In one of CBN’s attempts to encourage consumers, sellers and service providers to accept kobo coins, its leadership once stated that the new coins introduced then were light, portable and convenient to carry.
But Luke Egberanmwen blamed the government for the absence of coins in circulation.
“The government, on its own, contributed to the absence of kobo coins in circulation,” Egberanmwen said, alleging that it was the Federal Government that directed commercial banks not to accept coins from customers as deposits.
According to him, while banks paid out coins to the public in some instances, they rejected deposits.
His words, “Beside the government, there is this deep apathy to the use of coins, apparently due to its bulkiness, and rejection during ‘spraying’ at social events.
“For the government to successfully bring it back into circulation again, there is need to campaign for attitudinal change among the people. In fact, some Nigerians view coins as money meant for beggars and would have nothing to do with them. But they fail to realise that both the micro and macro economies are related and inter-dependent.”
Suggesting ways to reverse the trend, he urged government to make policies that will encourage people to embrace the culture of using coins.
“Government can do this by re-directing the usage to specific businesses and, if possible, increase the face value. Such notes as N20, N10 and N5 should be converted into coins and you will be surprised that all denominations of coins would be in use,” he said.
