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“N5000 Note Will Reduce Inflation!” Says CBN - Politics - Nairaland

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“N5000 Note Will Reduce Inflation!” Says CBN by Noraokon: 5:39am On Sep 10, 2012
The Central Bank of Nigeria and its agents have been very active, as should be expected, in promoting the merits of the proposed N5000 note.
The apex bank’s advertorial maintains that “currency restructuring does not cause inflation in any form whatsoever, as it will not increase money supply.”  This observation, of course, is unassailable, if all things remain equal; in other words, so long as the velocity or the speed of spending money remains the same, there will be no increase in money supply.

If on the other hand, the N5000 note, for example, is speedily offloaded on receipt in order to unbundle the value, there is no doubt that the velocity of currency in circulation would increase and create the same impact as increase in money supply; so, CBN’s claims that the N5000 note will not induce inflation needs to be qualified!

Inexplicably, the CBN advertorial further stretches the argument on inflation, when it suggests that “currency restructuring may actually help in tackling inflation”!  If indeed reduced inflation rates coincided with the introduction of higher denomination notes in the past, the apex bank has not provided evidence that the drop was the direct result of higher denominations introduced.

Indeed, any insistence of a causative relationship will be an outright contradiction of CBN’s open admission that inflation is the product of increase in money supply, as the converse of that is that lower inflation rate is the product of reduction in money supply.

In other words, if higher denominations do not increase money supply, CBN cannot also prove that higher denominations will reduce money supply and lower the inflation rate, especially when it is incontestable that the proposed higher denomination, in conjunction with the cashless programme and coin profile, will ultimately increase the velocity of money in circulation with the same result as increasing money supply.

SAVE THE NAIRA, SAVE NIGERIANS!http://www.vanguardngr.com/2012/09/n5000-note-will-reduce-inflation-says-cbn/?utm_source=&utm_medium=twitter

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