Tinubunomics: Cardoso Building Strong Monetary Foundations

By Chinedu Okoye 

A stable economy is impossible without a strong financial sector and an appropriate monetary environment, these are two prerequisites for a strong monetary foundation, without which output cannot scale and industrial activity cannot expand. It is impossible to separate Banking and other financial institutions from industry.

When we talk about strong monetary foundations, we are not referring to absolute Naira strength. We mean exchange rate stability and availability of foreign exchange , without which international transactions (such as the import of essential goods and services or the repatriation of capital) become impossible.

What investors, both local and foreign, want is assurance: assurance that policies are credible, and that they can move funds in and out freely. This is only possible with liquid and efficient FX markets and sufficient reserves.
The decision to float the Naira came with a sharp devaluation that hit domestic prices. But it also freed up FX liquidity –a necessary pain for a longer-term gain.

We look at the milestones the Central Bank has achieved in order to buttress and explain our point in what we called “Strong Monetary Foundations.”

The Strong Monetary and Financial Foundations:

Exchange rate stability FX Availability & market price determination: 

The CBN has managed to;

1. Unify exchange rates
2. Clear up verified FX Backlogs to airlines and other foreign investors
3. Stabilize the Naira between the N1500 - N1600/$ level
4. Increase FX Inflows
5. Increase Gross, and net FX reserves
6. Implemented efficient price discovery systems (EFEMs) in the FX market.

What this means is that; (i) the previous arbitrary that occured with a fragmented FX market which led to shortages are over and FX though, expensive is readily available with the reserves able to support 10 months of imports.

(ii) Confidence is restored to the international community, with FX and capital controls lifted, and a liquid and readily available market. (iii) The price of the Naira is now market determined fort he most part, costing the central bank little, to maintain stability.

Diaspora Remittances:

One of the most resilient sources of foreign exchange inflows for Nigeria has been diaspora remittances, which have increased under Cardoso’s tenure, owing to enhanced engagements with the Nigerian diaspora, a unified exchange rate system that encourages trackable transfers, and the formal introduction of dollar-denominated local bonds.

The inaugural bond issuance was heavily oversubscribed, signaling strong investor confidence. This remittance channel has become a major lifeline for FX inflows, adding to reserves, supporting exchange rate stability, and diversifying the country’s foreign currency sources beyond crude oil exports.

Inflation Targeting:

In November 2023, Governor Cardoso announced plans to introduce an Inflation Targeting Framework, marking a major shift in Nigeria’s monetary policy mechanism. This framework is designed to tackle the country’s persistent inflation problem, with data-dependent policies.

It also enforces policy credibility as inflation targeting is a prudential approach that ensures decisions are based on real economic signals rather than political pressure, preserving the autonomy of the Central Bank.

Monetary Ammunition: With a high CRR, a high and positive real Monetary Policy Rate (MPR), This gives the Central Bank room to ease policy when inflationary pressures moderate, a strategic advantage for stimulating growth without risking runaway inflation.

Deepening of Financial Markets: Banking and Insurance recapitlaization is expected to have or come with an effect of capital markets deepening. Larger, better-capitalized institutions will have the scale to underwrite bigger projects, issue invest in more the government bonds, and participate in larger equity offerings, expanding the breadth and depth of the financial market.

Credit Availability: With initiatives like NELFUND (student loans) and CREDICORP (SME financing), plus improved data synchronization between banks, credit bureaus, and regulators, lenders are now better equipped to assess risk.

This builds a credible credit history for borrowers, reduces defaults, and strengthens financial inclusion. Over time, a richer pool of historical data will allow for more competitive interest rates and wider access to financing.

What this means for the Economy:

The adminstration, through Cardoso’s CBN, is laying the groundwork for a monetary environment where liquidity is reliable, policy tools are abundant, and decisions data-dependent.

With importers now able to get FX on demand, foreign investors able to repatriate capital, Naira found a base level, and financial markets deeper with stronger institutions, the financial sectire will better support industry.

With importers unencumbered by FX availability, and with a weaker Naira, there would be a free flowing supply of eßential imports, with a cap on it, given capital constraints and weaker consumer demand growth, from the exchange-rate induced inflation.

In the absence of foreign investors capital repatriation fears, any investment opportunity contemplated will now depend on Non- monetary factors.

The central bank doesn't need to spend billions of dollars only to have a fragmented FX market with shortage of supplies, and the increased reserves –a direct consequence of the float – enables the Apex Bank to intervene minimally when needed, essentially “managing the float” with minimal cost.

The financial sector has both the capital and infrastructure to support sustained economic growth. These “Strong Monetary Foundations” may not deliver overnight prosperity, but without them, no growth plan can stand.