African experience

Examples from the continent show that if demonetisation is not properly conceptualised and implemented, it can spell endless suffering for the people.

Muhammadu Buhari, President of Nigeria.

THE dramatic announcement by the Prime Minister that more than 80 per cent of India’s currency in circulation was no longer valid tender brought back memories of this correspondent’s experience in Nigeria way back in 1984. The civilian government under President Shehu Shagari was overthrown in a military coup led by a relatively young officer by the name of Muhammadu Buhari. The military junta led by him claimed that Nigeria under civilian rule had become a highly corrupt country, with a rich elite gobbling up the country’s enormous oil-generated wealth and secreting it in secret bank accounts in the West. After taking power, Buhari launched a “War against Indiscipline”, which included raids on corrupt officials and businessmen, along with the public shooting of armed robbers and those accused of violent crimes.

When the military took over, the Nigerian currency, known as the “naira”, was among the strongest in the African continent. You could get two American dollars for one naira those days. The Nigerian economy, however, had come under great strain at the time as international oil prices were plummeting. A country that once had a thriving farm sector had become almost totally dependent on imports for its food needs. General Buhari initially resisted the demands of the World Bank and the International Monetary Fund to restructure the economy by resorting to devaluation of the currency. Instead, he opted for the radical measure of demonetising the currency.

Without any warning, the military government announced the decision over radio and television in early 1984. The government just changed the colour of the notes. The country’s borders were sealed and a “wage freeze” was implemented. What followed was utter chaos and confusion as the weak banking system was not in a position to cope with the anarchy the decision had unleashed.

This correspondent remembers paying a hefty bribe to get his money exchanged and to retrieve his savings from the bank. Those days there were no cards, ATMs or the Internet. Prices shot up and the living standards of the people fell as a result of the demonetisation policy. The demonetisation move did not pay any economic or political dividends either. The media at the time reported that corruption went on unabated, with Nigerians leaving the country with suitcases full of currency to be deposited in Western banks. By the end of 1984, the Nigerian government had to admit that the move aimed at eradicating corruption was a failure. General Buhari himself admitted that the government was to “all intent and purposes become bankrupt”. The demonetisation exercise may have been the trigger that led to the long-drawn-out slide of the Nigerian economy.

When the Nigerian media started criticising the military government’s demonetisation move, General Buhari issued the notorious Decree No.4 to “ensure” that journalists reported “truthfully” and that public servants were not maligned by the media. Many prominent media personalities and critics of the regime, including the popular Afrobeat singer Fela Kuti, were arrested. The demonetisation policy and the consequent anti-democratic measures that followed brought down the Buhari government the following year. General Buhari was ousted by a fellow military officer, General Ibrahim Babangida, who promised to expeditiously bring back democratic rule and follow more prudent fiscal policies.

The Nigerian economy had revived to some extent in the last decade because of high oil prices but is in the doldrums again now. And the man in charge is once again General Buhari. His campaign slogan during the elections was “New broom”. His supporters were shown carrying brooms to clean up the corrupt Nigerian politics and society. He has, of course, donned a civilian garb but, evidently, still retains some of his authoritarianism. He is once again busy trying to ferret out illicit money from corrupt politicians and businessmen. Buhari has promised to publish a list of corrupt Nigerians raided by government agencies.

Meanwhile, if it is of any consolation to the millions of Indians standing patiently in queues, similar scenes are being replicated in Zimbabwe. People have been sleeping outside banks to withdraw their money amid worsening cash shortages. Zimbabwe has adopted the United States dollar, along with a basket of other international currencies. With dollar reserves in the banks running out, people are desperate to lay their hands on their savings. The government has announced plans to introduce “bond notes” to replace the U.S. dollar. The new notes will be interchangeable with the U.S. dollar and is backed by the African Export Import Bank. Banks in Zimbabwe are allowing withdrawals of only $50 per account holder.

Given past experience, Zimbabweans have very little trust in any currency printed by the government.