Some years ago, while in the University, I went to buy a tin of tomato paste which cost N20 per tin and I knew that the cost of a dozen was N200. After about a month, I found out that the tin cost N30 and a dozen cost N290. I was surprised to see that the cost of the tin had increased from N20 to N30 that is, 50% increase. I asked the retailer the reason she did not sell at N25, she replied that she wouldn’t make any gain which we calculated together by dividing N290 by 12. Then I remember that if small denominations such as 1Kobo, 5Kobo, 10Kobo, 50Kobo, N1 etc were available, she would have at least sold at N27 or N28 per tin and would still make her gain. Then this term “Quantum Denomination” sprung in my heart.
The term was actually borrowed from physics. In physics, a quantum is the minimum amount of any physical entity (physical property) involved in an interaction.
I used the term metaphorically to express the effect of the small denominations on our daily business transaction..
Then in the University, I wanted to write an article titled “Quantum Denomination” but I couldn’t articulate my thoughts.
It reminds me of the rate at which inflation has eaten up into the Nigerian economy that even the N5 and N10 notes are losing their purchasing power and the confidence people have in them.
Though there are other causes of inflation e.g. Excess Demand over supply, Rising Cost of production, inflation Imported and Exchange rate but the rate at which the non-availability of these denominations has fuelled inflation in Nigeria cannot be undermined. They are like those small things which have the greatest effect.
The worst effect of inflation is the erosion of value of a country’s currency. We see the Italian lira lost its value and the German Dutch once did. Others are poverty, higher borrowing cost, increased cost of living, fall in purchasing power and standard of living.
The value of Nigerian currency dwindled rapidly into the verge of entering the fourth republic. So, before the fourth republic, the people of Nigeria had lost confidence in the denominations as the purchasing power of those denominations had become naught especially in the Southern Nigeria.
While other CBN Governors administered around the problem, the coming in of Professor Charles Soludo in 2004 saw the need to reawaken the people’s confidence in the denominations. He started the resuscitation exercise with the coins especially the N1 and the N2. The effort was unfruitful as the people refused to accept the denominations in their transactions.
The governor also tried to enforce acceptability through the banking sector, but the people have the will. The people would rather leave their transaction balances than to have the denominations with them because they had the premonition that no one would accept from them.
This went on for some months that the government gave up its effort to resuscitate the denominations.
What was the mistake the Government made?
In 2012, I carried out a mini research on why these denominations were still being accepted in countries which were even advanced than ours and had been for years before us.
I realized that in those countries the effort to maintain the small denominations is inclusive at every government level. The government ensured that every price of goods is quoted with their small denominations and even in their decimals. In the US, you will see that a particular good is sold at $92.30 etc. The same thing happens in other developed countries.
I realized that though the Central Bank Management then tried to resuscitate the denominations but enforcement in one sector or through one sector made it not to see the light of the day. The CBN focused using the monetary policy and within the monetary economy neglecting the real/product economy where the real activities of exchange occurs.
That is, the resuscitation can not only be done by one unit of the economy alone, all hands must be on deck.
The Effect of Extinction of the “Quantum Denomination”
The extinction of the denominations has made the cost of goods increased sky-rocketedly.
Prices have been known to be sticky according to Maynard Keynes, the father of Macroeconomics. That is, it will always go up as the economy increases its volume of transactions in goods and services. Inflation is bound to happen but the rate at which it increases is the problem.
For instance, between 2015 and 2016 when the price of a bag of sachet water containing 20 pieces of sachet was N50 naira, retailers were able to sell at the rate of N5 per sachet making between 80% to 100% profit depending of number of wastage. But when the price of a bag of sachet water went up to about N70 naira, the retailers could have increased by just N1 or N2 naira. But due to non availability and non-acceptability of these small denominations, we had the retailers increased the price to N10 per sachet. That is a wholesome 100% increase. We see how the non availability and non acceptance of these quantum denominations fuel inflation at high rate.
- The policy makers should make effort to resuscitate the use of these denominations if we are serious about curbing high rate of inflation in Nigeria. The inflation data often given by NBS are computed using the CPI (Consumer Price Index, which uses basic goods and services consume by people). That is, the effect is high on consumers whose large percentage of their income goes into the purchase of basic food items
- Government can collaborate with supermarkets and its agencies to give incentives to those people who purchase items using the denominations.
- However, the effort has to be at all government level.
And I believe my analysis will give some insights into providing additional solutions