The Central Bank of Nigeria (CBN) has rolled out a four-point agenda aimed at restoring the value of the Naira to the rate it was prior to the introduction of the Structural Adjustment Programmme (Sap) in 1986.
Professor Chukwuma Soludo, CBN governor, who announced this in Abuja yesterday, during the presentation of the “Strategic Agenda for the Naira”, said currency re-denomination which would entail currency exchange and phasing out of all the existing denominations, shall take effect from August 1, 2008.
Soludo said these measures are aimed at achieving the objective of the Financial System Strategy (FSS) 2020, which is geared towards making Nigeria the financial hub of Africa as well as improving the payment system.
“Effectively, at the current exchange rate, this policy would mean that the naira/dollar exchange rate would be around N1.25 to $1 then,” he said. “All naira assets, prices and contracts will be re-denominated by dropping two zeroes or two decimal points to the left with effect from this date”.
According to the CBN governor, the proposed currency structure as it affects the coins, includes 1 kobo, 2 kobo, 5 kobo, 10 kobo and 20 kobo, while the notes would include 50 kobo, N1, N5, N10 and N20, respectively.
He added that as from January 1, 2009, CBN would adopt inflation targeting framework for the conduct of monetary policy. He noted that in the light of the new mandate as contained in the new CBN Act 2007, which required the apex bank to ensure monetary and price stability, as well as the need to provide a transparent, credible framework to lock-in inflationary expectations, the CBN will adopt inflation target as the nominal anchor for monetary policy.
He stated that the adoption of this policy does not preclude CBN from handling other broader objectives of macroeconomic policy such as output growth, employment, exchange rate and balance of payments.
“Locking-in inflationary expectation is one effective way of ensuring that the currency re-denomination will be sustainable,” he said. “The outcome of this new framework will greatly improve the credibility of the CBN as the monetary authority, as well as deepen the financial markets and promote rapid development of a private sector led-economy”.
Another strategy, which he said would form part of the reform, is the sharing of part of the federation account allocation in dollars, to deepen the Forex market and for liability management. This, he said, would begin next month.
The decision to share part of the federation account in dollars, according to Soludo, was part of the resolution of the monetary policy committee, which felt that following the reforms in the banking sector and the further liberalisation of the Forex market, both the financial system and the Forex market have deepened and become increasingly sophisticated.
He however stated that the proportion of the federation account to be distributed in dollars will be determined from time to time, but largely dependent on the assessment of the forex market as well as the liquidity management requirements of the CBN.
Under the new arrangement, both the states and the federal government would be required to open special domiciliary accounts with commercial banks of their choice. These special accounts, he said, can only be accessed by monetising the balances to naira.
He also said as from next month, the exchange rate that will be applied in monetising of federation account and the special domiciliary accounts, would be the inter-bank rate on the day of sharing.
The Governor said CBN would embark upon full liberalisation/convertibility of current account by January 2009, to meet the international obligation imposed on it as a member country of the International Monetary Fund (IMF) and as a necessary complement to some of the outlined policy initiatives and to further deepen the integration of Nigeria’s financial system into global economy.
These, he said, would help Nigeria to eliminate all restrictions on current account transactions and accession to Article VIII of the IMF, noting that out of the 185 member countries of the IMF, 167 have acceded to the article on current account convertibility.

Article from the financial standard news(13-08-07).