THE FEDERAL GOVERNMENT and the Central Bank must develop effective mechanisms to cushion the public from effects of currency reform ahead of the printing of new currency, the Financial Governance Committee has said.
In a report this week, the FGC said a contested currency reform as recently witnessed in India could severely damage the credibility of the Federal Government and the Central Bank and further destabilize the country more generally.
“The FGC recommends that the incoming Government holds early discussions with CBS so that it understands the key choices and risks associated with currency reform, and initiates discussions with the FMSs,” the report says.
The FGC which is chaired by the Finance Minister and draws membership from the offices of the President, PM, Central Bank and international financial institutions such as the IMF, World Bank and African Development Bank calls for political agreements between the Federal Government and the Federal Member States (FMSs) to ensure the transition into new currency does not destabilize the economy.
The issue of currency conversion, the FGC says requires critical political input to determine for example the issue of compensation for most Somalis who hold counterfeit notes.
“The question therefore is whether the people who hold these notes, particularly people with low incomes, should be entitled to full, partial or no compensation for the notes they hold,” says FGC.
A currency reform process in India last November which the government said was aimed fighting black money, counterfeit currency and terror financing sucked out 86% of the 500 and 1000 rupee notes and replaced with 500- and 2,000-rupee versions.
Central Bank Governor Bashir Issa Ali said February the country would have new bank notes this year with ‘good, reliable security features’. The printing of new notes is estimated to cost the country $60 million and the FGC says this will require substantial donor financing.
“Successful completion of the currency reform will require substantial donor financing, for printing and distributing the new currency, plus any costs of converting old notes for new ones.”
The notes in circulation currently are a mix of genuine ones printed before the collapse of government in 1991 and a majority in counterfeit form printed in subsequent years. E-money facilitated by mobile phone companies has eased transactions incorporating the use of the dollar.
The FGC says roadmap for the currency reform focuses on finalizing the counterfeit strategy, deciding on the scope of exchange and conversion factors, properly phasing in the legal framework, and preparatory work for currency storage, distribution, and collection.