Nigeria lost N6.2tr to flexible FX regime in 2022, says Cardoso

Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, said Nigeria lost N6.2 trillion to the flexible foreign exchange (FX) rate regime in 2022 alone.
The CBN chief stated this at the Bankers’ Night hosted by the Chartered Institute of Bankers of Nigeria (CIBN) and held in Lagos last night, arguing that the country lost more to the FX subsidy than to that of fuel.

The amount lost to FX rigidity, as disclosed by Cardoso, is about N1.7 trillion higher than the N4.5 trillion lost to fuel subsidy, which lasted for decades until last year when the Federal Government took decisive action.
Until July last year, Nigeria operated a pegged FX market, a model that created multiple exchange rates and huge arbitrage opportunities.

But the naira buckled and fell sharply following the market liberalization, which, among other things, included depegging and rate harmonization.
However, Cardoso insisted that the naira is trading below its fair value and that it would strengthen as the reform takes root.

On account of the reform, he told the audience, the daily turnover of FX rose by over 200 per cent year-on-year in the first half of the year. Foreign capital inflow, he said, also improved remarkably, validating the rising confidence in the process.

The regulator said the monetary authority was closely monitoring inflation trends and would reduce interest rates once prices began to ease.

“Monetary policy typically takes six to nine months to impact consumer prices,” he noted, even as he expressed confidence that the inflation battle would be won.

He disclosed that the monetary policy rate (MPR) would continue to serve as the anchor for managing inflation while the cash reserve ratio (CRR) would support as a liquidity adjustment strategy.

In recent years, the effectiveness of MPR has been questioned. The previous administration, at some point, contemplated the possibility of experimenting with inflation targeting, as money supply targeting had lost its relevance.

The governor apologized for the recent transaction hitches in the banking sector and warned that banks that fail to improve their processes going forward would be sanctioned.

From December 1, he said, customers would be further empowered to report banks that are failing in their responsibility, disclosing that the CBN would take such reports seriously.
The warning came ahead of concerns that the expected spike in yuletide transactions would strain the payment system and possibly cause a crisis in transaction settlement.
Whereas the CBN boss acknowledged the impact of japa on the financial system, he insisted that the trend presents a rare opportunity to reinvent the system.

“We are not oblivious to the challenges of the past decade, including the *japa* of experienced professionals in the financial sector. This moment presents an opportunity to rebuild our competency framework, re-educate staff, and return to best practice training. Re-education is critical – concepts like ‘willing buyer/willing seller’ have been misinterpreted, and the market has forgotten that at least one counterparty in a transaction must be an authorised dealer.

“We must restore these standards and uphold industry ethics. We will also prioritize capacity development and continuous education at the CBN, which is home to many talented individuals,” he said.

Cardoso said the reform was about building an economy where every business, individual, and community could thrive. He admitted that the challenges are tough but noted that the country could achieve its dream through collective action.