In the past decade, Nigeria’s monetary policy has been a rollercoaster ride of ups and downs. The Central Bank of Nigeria (CBN) has made various decisions aimed at stabilising the economy, controlling inflation, and promoting growth.
In this article, we will review the major monetary policy decisions made by the CBN since 1958 and their impact on the economy.
Nigeria’s monetary policy has undergone significant transformations over the years, shaped by the vision and leadership of its central bank governors.
Fenton was a British economist and banker who served as the first governor of the Central Bank of Nigeria. During his tenure, he played a crucial role in establishing the bank and shaping the country’s monetary policy.
He worked closely with the government to develop a framework for economic growth and stability. Fenton’s legacy includes setting up the CBN as a reliable institution, establishing the Nigerian currency (the naira), and creating a foreign exchange system. He also introduced the country’s first banking legislation and established the Nigerian Security Printing and Minting Company.
Mai-Bornu was a Nigerian banker and economist who succeeded Fenton as the second governor of the Central Bank of Nigeria. He was the first Nigerian to hold the position.
During his tenure, Mai-Bornu oversaw the introduction of the naira as the official currency, replacing the British West African pound. He also implemented policies aimed at promoting economic development and reducing dependence on foreign capital.
Mai-Bornu played a key role in establishing the Nigerian National Petroleum Corporation (NNPC) and the Nigerian Agricultural and Cooperative Bank. He also served as a minister in the government, overseeing the ministries of Trade and Industry, and Finance.
During Dr. Isong’s tenure, Nigeria transitioned from the Nigerian pound to the naira. He guided the Central Bank of Nigeria during the Nigerian Civil War and the oil boom that followed.
He also complained that Nigeria was accumulating foreign reserves but had “nowhere to invest them properly,” despite the fact that there was a lot of room for infrastructure improvements.
Monetary Policy During Mallam Adamu Ciroma‘s Term (9/24/1975 – 6/28/1977)
During Ciroma’s tenure, he held various positions in the Public Service. He joined the Board of the Central Bank in 1970 as a Director and later became the Governor in 1976.
He also served as a Minister in the Ministries of Industry, Agriculture, and Finance, and sat on the Board of several companies.
(Late) Mr O. O. Vincent: (6/28/1977 – 6/28/1982)
Mr O. O. Vincent, also known as Ola Vincent, was a Nigerian economist and banker who served as the Governor of the Central Bank of Nigeria from 1977 to 1982, a time when the nation faced very dire economic challenges. His expertise in handling his role as the Governor helped to provide stability and economic growth at the time.
Prior to his appointment as Governor, he was Deputy Governor from April 1, 1975 to June 28, 1977.
Some key achievements of late Ola Vincent, the former Governor include the following – Introduction of the N20 Banknote with the portrait of former Head of State, Late General Murtala Ramat Mohammad in 1977.
Introduction of the portraits of eminent Nigerians on the N10, N5, and N1 Banknotes in 1979.
Opening of ten (10) Branches between 1978 and 1981 namely: Sokoto, Ilorin, Calabar, Bauchi, Abeokuta, Akure, Owerri, Makurdi, Yola, and Minna. This achievement brought the number of CBN Branches to eighteen (18) in 1981.
Conceptualisation, launching, and setting aside funds for the Agricultural Credit Guarantee Scheme (ACGS).
Midwifed the computerisation of the Bank’s operations tagged “Central Bank of Nigeria Computerisation Project” in 1978. That was the Computerisation of the payroll process, customer and general ledger, foreign exchange control, public debt, economic modeling and forecasting, statistical computation and analysis.
Laying the foundation stone of the Staff training school at the satellite town, Lagos.
Mr Vincent was married and had children. He passed away on September 3, 2012, at the age of 87.
Born on October 31, 1940, in Jama’are, Bauchi, Ahmed had his early education in Jama’are and Bauchi before attending Barewa College Zaria in 1955. He served as CBN Governor from 1982 to 1993, making him one of the CBN Governors with the longest tenure in office having served for 11 years.
His tenure covered the democratic governments of Shehu Shagari, Ernest Shonekan’s interim government, Muhammadu Buhari, and Ibrahim Babangida’s military regime.
Key achievements
He became the first chairman of the Nigeria Deposit Insurance Corporation on the 15th of June 1988.
During his reign as governor, Ahmed focused on debt reduction and led Nigeria into such contracts that would help him achieve his aim. Between 1988 and 1993, he achieved this goal by reducing foreign debt by $5 billion at 32% face value of the debt purchased.
He also initiated the first comprehensive sovereign debt buyback in the international markets, which further reduced Nigeria’s foreign exchange burden, between 1988 and 1993, through an overseas subsidiary company named Greenland Holdings.
After his tenure elapsed, Ahmed returned to London with his family members. He later died in 1997 at the age of 81.
Dr Paul A. Ogwuma, OFR (10/1/1993 – 5/29/1999)
Paul Ogwuma, born April 24, 1932, served as CBN Governor in 1995 at a time when Nigeria’s economy faced one of its greatest challenges in life. He started his banking career at United Bank for Africa Plc before moving over to Union Bank Plc where he rose to the position of Managing Director/ Chief Executive Officer before retiring in the late 1980s.
Key achievements
Ogwuma used all the expertise at his disposal to tackle the challenges of pervasive bank distress, managing Nigeria’s foreign exchange resources, and formulating adequate monetary and fiscal policies to reduce inflation, promote growth and development, provide jobs, and reduce Nigeria’s debt profile.
The Abia-born accountant for the first time in the country’s economic history addressed the issue of distressed banks by liquidating 20 banks over three years in an attempt to sanitise and restore confidence in Nigeria’s financial system.
Moreover, the operators of the financial system are more than ever before, under one authority the Central Bank during his tenure. Institutions such as mortgage banks, community banks, and all the development banks are now under the direct supervision of the Central Bank of Nigeria, creating a unity of purpose.
Central Bank of Nigeria under Ogwuma planned to divest its retail banking functions to enable it to fully face its increased regulatory responsibilities.
He also managed the country’s foreign trade in such a way as to boost our foreign reserves to new heights to finance its external obligations including paying for our imports and external debts which are equally managed by the Central Bank of Nigeria.
Dr Ogwuma enjoys lawn tennis, golf, swimming and reading. He is married with children.
Chief Joseph Oladele Sanusi is a Nigerian chartered accountant who served as CBN Governor from May 1999 to May 2004. Born on 24th September 1938, in Ogbagi-Akoko, Ondo, Sanusi attended South-West London College and Kingston College of Technology, England from 1962 to 1965 and qualified as a Chartered Accountant in England.
In 1969, he became a member of the Institute of Chartered Accountants of Nigeria (ICAN) and became a fellow of the Nigerian Institute of Bankers in 1987.
Notable initiatives
Chief Sanusi is known for his efforts to promote financial transparency and accountability. He introduced foreign exchange controls to reduce the drain on foreign reserves which had fallen from over $7 billion to under $4 billion in the last two years, and to defend the Nigerian naira. Oil revenues, the primary source of foreign exchange, had dropped below the level needed to cover basic requirements.
He recommended greater use of the long-term capital market rather than the short-term money market, and much greater focus on productive use of the money borrowed to optimise return and avoid building up a problem for future generations.
In May 2004, Sanusi voluntarily retired and handed over to Charles Chukwuma Soludo (now Anambra Governor).
Nigeria’s monetary policy has undergone significant transformations over the years, shaped by the vision and leadership of its central bank governors.
From the tenure of Prof. Chukwuma C. Soludo to the current leadership of Mr. Olayemi Cardoso, the Central Bank of Nigeria (CBN) has implemented various reforms and policies aimed at promoting economic growth, financial stability, and inclusion.
Prof. Soludo introduced the National Financial System Strategy (NFSS) in 2004, laying the foundation for financial sector reform and development.
He emphasized the need for a robust financial system: “A sound and stable financial system is essential for economic growth and development.”
The Central Bank of Nigeria (CBN) adopted the National Financial Inclusion Strategy (NFIS) in 2012. The Strategy articulated the demand-side, supply-side, and regulatory barriers to financial inclusion, identified areas of focus, set targets, determined key performance indicators (KPIs), and established the implementation structure.
The NFIS was built on four strategic areas of agency banking, mobile banking/mobile payments, linkage models, and client empowerment. Four priority areas were identified for guideline and framework development namely, Tiered Know-yourCustomer (T-KYC) regulations, Agent Banking regulations, National Financial Literacy Strategy, and Consumer Protection.
The Strategy defined a set of targets for products, channels, and enablers of financial inclusion. The KPIs were defined, based on the various dimensions of financial inclusion, including access, usage, affordability, appropriateness, financial literacy, consumer protection, and gender.
The NFIS proposed strategies for each of these elements, which included a comprehensive set of policy and regulatory changes as well as suggested business models. In the implementation of the Strategy, the targets were further tailored to reflect the needs and challenges of individual financial service providers (FSPs).
Strategy Review Process
In line with the 2012 NFIS monitoring plan, a review was carried out from October 2017 to June 2018 based on research reports, data analysis, and stakeholder engagements. The exercise aimed to understand the current state of financial inclusion in Nigeria, and assess past approaches, and lessons learned to prioritise the most critical interventions to achieve the objectives.
Mallam Sanusi Lamido Sanusi’s tenure from 2009 to 2014 was marked by significant reforms, including the introduction of the Asset Management Corporation of Nigeria (AMCON) and the Banking Sector Reforms.
Sanusi was appointed Governor in the middle of a global financial crisis with the Banking system on the verge of collapse due to large exposure to the stock market in the form of babble capital and excessive margin lending by some banks, as well as concentration of lending to other areas like petroleum marketing.
Under his leadership, the Central Bank of Nigeria moved swiftly and boldly to implement far-reaching reforms in the Banking Industry aimed at addressing the root causes of the crises in poor corporate governance and risk management practices, management fraud, insider abuses and weak regulation supervision and enforcement.
Critical Elements of Banking Reform in Nigeria
The current reforms which began in 2004 with the consolidation programme were necessitated by the need to strengthen the banks. The policy thrust at inception was to grow the banks and position them to play pivotal roles in driving development across the sectors of the economy.
As a result, banks were consolidated through mergers and acquisitions, raising the capital base from N2 billion to a minimum of N25 billion, which reduced the number of banks from 89 to 25 in 2005, and later to 24.
A joint audit exercise carried out by the Central Bank and the Nigeria Deposit Insurance Corporation (NDIC) revealed that eight out of the twenty-four deposit money banks in the country were in a grave situation leading to the removal of the management by the CBN and injection of bail-out funds to stabilize the institution. The first set of interventions occurred on August 14, 2009. Since that date the CBN has issued guidelines and implemented new regulation as policies. Among these are:
- Review of Prudential guidelines to encourage lending to the real sector
- Compulsory adoption of common year ended for financial reporting and enhanced reporting standards
- Compulsory retirement of CEO’s who have spent upwards of 10 years in office
- Tenure limit of 12 years for non executive directors enforced in line with guideline issued in 2006
- Compulsory change of external auditors after ten years also as approved in 2006
- Abolition of Universal Banking and issuance of graduated authorization for licenses at international nature and regional levels
- Spearheading real sector reform advocacy with government for power, petroleum, agriculture and industrial policy.
- Enhanced coordination with regulatory agencies like Securities and Exchange Commission (SEC),
- Pension Commission (PENCOM) and NDIC to entrench overall system stability.
- Restoration of stability to the foreign exchange and money markets, and
- Increased focus on capacity building and process efficiency in the CBN.
He stressed the importance of a strong banking system, stating, “A strong and stable banking system is critical to the overall health of the economy.”
Mr. Godwin Emefiele’s leadership from 2014 to 2023 saw the introduction of the Treasury Single Account (TSA), Foreign Exchange Restriction Policy, Anchor Borrowers’ Programme, and the Cashless Policy.
TSA refers to Treasury Single Account, a public accounting system using a single account, or a set of linked accounts by the government to ensure all revenue receipts and payments are done through a Consolidated Revenue Account (CRA) at the Central Bank of Nigeria (CBN). The pilot TSA scheme commenced in 2012 using a unified structure of accounting for 217 government Ministries, Departments and Agencies, MDAs, for accountability and transparency in public fund management.
All government MDAs remit their revenue collections to the CRA through their individual commercial banks on a fee-for-service remuneration basis. Although all monies earned by the federal government through value-added tax (VAT), customs duties, immigration, and other charges, are supposed to be paid into the CRA, a few exceptions border on accounts operated by joint venture partners with the government, like oil mining leases (OMLs) in the oil and gas industry.
Foreign Exchange Restriction Policy
In February 2022, Nigeria’s commercial banks declared reduced limits on international transactions using naira debit cards to $20 per month.
It means Nigerians would be unable to use their naira debit cards to make any transactions more than $20 in a month. This comes as a longstanding scarcity of foreign exchange continues to bite Africa’s largest economy and biggest oil exporter, Nigeria, despite the recent surge in global energy prices.
The United Bank of Africa (UBA), in February first took the decision when it notified customers of $20 as its new limit. According to the declaration, “In line with our promise to keep you updated on services, we have reviewed Naira Card limits for international transactions, and this will take effect 1st of March, 2022.”
The Cashless Policy, launched in 2012, aimed to reduce the use of physical cash and promote digital payments. Emefiele emphasized the need for a cashless economy, saying, “A cashless economy is essential for reducing corruption, promoting financial inclusion, and improving economic growth.”
As the current governor, Mr. Olayemi Cardoso inherits a complex economic landscape, with challenges such as inflation, currency fluctuations, and financial exclusion. He was appointed the chairman of the bank’s Monetary Policy Committee (MPC) by President Bola Tinubu.
He has pledged to build on the achievements of his predecessors and introduce new initiatives to drive economic growth and development.
In his inaugural speech, he said, “We will work tirelessly to ensure that monetary policy supports economic growth and development.”
Cardoso Outlines Monetary Policy Direction
In a recent address, Central Bank of Nigeria (CBN) Governor Olayemi Cardoso outlined his vision for the country’s monetary policy. The governor emphasized the importance of price and exchange rate stability, and announced plans to implement an inflation targeting framework.
According to Cardoso, the CBN will focus on microprudential policy and forward guidance to achieve its goals. The governor also highlighted the importance of monetary policy in promoting welfare and stabilizing the economy.
Cardoso noted that the CBN will discontinue direct quasi-fiscal interventionist activities and instead focus on orthodox monetary policy tools. The bank will also implement an inflation-targeting framework and review foreign exchange guidelines and legislation.
The governor’s announcement has been welcomed by economists and financial experts, who see it as a positive step towards promoting economic stability and growth in Nigeria.
Key Highlights of the Monetary Policy Direction
– Price and exchange rate stability
– Inflation targeting framework
– Microprudential policy
– Forward guidance
– Monetary policy and welfare
– Policy trilemma
– Price Stability and Monetary Policy Effectiveness
– Discontinuation of direct quasi-fiscal interventionist activities
– Orthodox monetary policy tools
– Inflation-targeting framework
– Review of foreign exchange guidelines and legislation
