24 Aug 2007 |
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Nigerian government stops currency re-denomination plan Fri 24 Aug 2007, 14:39 GMTBy Felix Onuah ABUJA, Aug 24 (Reuters) - Nigerian Justice Minister Michael Aondoakaa on Friday froze a plan to re-denominate the naira currency which the central bank announced last week, saying the bank had violated the law. Aondoakaa said Central Bank Governor Chukwuma Soludo should have sought President Umaru Yar'Adua's written approval before announcing the plan, which involves removing two zeros from price tags from Aug. 1 next year. "I, as the chief law officer of the federation, hereby stop all actions on the re-denomination of the naira," Aondoakaa told reporters after a meeting with Yar'Adua. Festus Odoko, the central bank's chief spokesman, said it would discuss the issue with the justice minister. "It is certainly not true that the bank did not consult with the president about the re-denomination," Odoko said. Re-denomination was one of a number of policies announced by Soludo on Aug. 14, some of which financial markets considered more significant. Asked if the other measures were also being frozen, a close aide to Yar'Adua, who did not wish to be named, said: "It is only the re-denomination that the president is not happy with." Critics had questioned the cost and benefits of the re-denomination plan, announced just a few months after the central bank introduced new 50, 20, 10 and 5 naira notes. These notes, which cost millions of dollars to print, would become useless after the proposed re-denomination. Aondoakaa cited section 19 of the Central Bank of Nigeria (CBN) Act 2007, which states among other provisions: "Currency notes and coins issued by the Bank shall be ... in such denominations of the Naira or fractions thereof as shall be approved by the President on the recommendation of the Board." "ILL-CONCEIVED" "The federal government has done the right thing in halting the ill-conceived policy. The whole policy was not well thought out," said Ayo Teriba, head of consultancy Economic Associates in Lagos. Soludo announced the re-denomination at the central bank's main auditorium to an audience of hundreds including state governors, ministers, diplomats and journalists. Soludo said at the time that the aims of the re-denomination included anchoring inflationary expectations better, strengthening public confidence in the naira, making conversion to other currencies easier and promoting usage of coins. He also announced that the central bank would distribute part of fiscal revenues to the three tiers of government in dollars from next month, while from Jan. 1, 2009 it would adopt an inflation-targeting framework and remove restrictions on current account transactions. The re-denomination was the measure that attracted most criticism. "Given the limited economic benefits, as well as the high fiscal cost associated with the re-denomination, there was always going to be some level of uncertainty attached to it," said Razia Khan, regional head of research for Africa at Standard Chartered Bank in London. The naira depreciated on Friday to 126.41 to the dollar from 126.38 on Thursday, dealers in Lagos said, but they added it was not in response to freezing of the re-denomination plan.
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