I commend Nigeria’s apex bank governor, Yemi Cardoso, for this new playbook: ‘In a significant shift from previous practices, Cardoso revealed the central bank’s intention to withdraw from direct development financing interventions. He said the CBN aims to transition to more limited advisory roles that align with the government’s economic agenda. There is a need to pull the central bank back from direct development finance interventions into more limited advisory roles that support economic growth,” explained Cardoso.”

This is what I have been advocating for ages. I had noted that part of Nigeria’s problem was the overheating of the economy with Naira via the Ways and Means policy ( Nigerian government borrowing from CBN!) which distorted market equilibrium, and in the process neutralized CBN policies.

Largely, you raise interest rates to slow the economy and control inflation, but the next day, you print billions of Naira and hand it over to the government, canceling out the very policy you are architecting to control inflation. Under that regime, Nigeria has struggled to tame inflation!

But with this new policy, there is hope. Of course, everything depends on  Cardoso’s capacity to hold his ground as the government comes with a debit card for more money, knowing that the CBN can load the ATM with cash!

I call on the apex bank to also do something new: instead of raising rates to lower inflation in Nigeria, lower interest rates to boost production and supply. I guarantee you that if you lower interest rates in Nigeria, you will improve the Supply side in the market, and if that happens, inflation will drop. Our inflation is driven by low supply, and when we raise rates, we reduce supply [higher productive cost depresses supply] even though the policy has no impact on Demand since our consumer lending is largely nonexistent.

If you cannot try it across Nigeria, use Ovim, and you will see how inflation will drop in Oriendu Market, Ovim, Abia State.

Following growing public outcry over the nation’s current economic situation and mounting pressure from stakeholders to turn the fortune around, the CBN has been caught in the mix. The apex bank’s attempts for years to change the economic trajectory with varying monetary policies failed.

In a speech delivered via email on Tuesday, as reported by Reuters, Cardoso highlighted the pressing issues of a depreciating naira, double-digit inflation projected to reach 30% in the near term, and a staggering N87 trillion debt.

Comment On Feed

Comment 1: I have always held the opinion that until we go back to supply side economics, the whole monetary and fiscal policies of Nigeria will not yield 100% return. The supply side is the key. Let us have enough food supply with reliable road infrastructure that ensures prompt delivery at reduced cost anywhere in the country, consumer price index will go down which will directly impact inflation rate.
Let Govt provide infrastructure that supports surplus supply of food, clothing and shelter and see how cpi and inflation goes down.

Comment 2: Interesting positions. However, when the supply side is boosted and consumer lending remains non-existent, as the erudite Ndubuisi Ekekwe pointed out, there’s still a problem.

My Response: The problem is that prices will drop due to “Oversupply” assuming no change in Demand. That is a good problem to have in Nigeria right now and especially in Oriendu Market Ovim.

Comment 3: Thank you Prof. Ndubuisi Ekekwe for this economic analysis that I strongly align with. We do not tackle poverty and lack by mitigating or ameliorating it. Instead, we should focus on creating/catalyzing prosperity, so that scarcity, poverty and inflation are indirectly tackled too.

This is why I posit that for Africa to thrive economically under the clean energy transition, affordable (low-cost) energy must be made available in large quantities to boost local productivity. This will also protect our local markets from cheaper imported alternatives.

While we must commend what is being done in Africa now in replacing fossil-fuel generators with solar PV energy, our vision should be bigger: large-scale production of “cheap” sustainable energy for high-value agricultural value-chain, manufacturing and AI/data-science technological competitiveness.

You can please see details on this from my recent writing for The London School of Economics and Political Science (LSE) here: https://blogs.lse.ac.uk/africaatlse/2023/10/02/locally-generated-electricity-might-not-be-the-most-efficient-route-for-african-energy-transition/

The Central Bank of Nigeria has extended the validity of the old naira notes indefinitely, annulling the December 31, 2023 deadline set by the Supreme Court earlier in the year.

The apex bank announced the decision through a circular titled: “CBN To Allow Old Design Naira Banknotes As Legal Tender, Ad Infinitum”, which it shared on Tuesday.

“Please recall that the Central Bank of Nigeria introduced the redesign of N200, N500, and N1,000 denominations in October 2022 and certain deadlines were set for the old design of these denominations to cease as legal tenders. 

“Without prejudice, the Central Bank of Nigeria wishes to inform the general public of its desire to extend the legal tender status deadline of the old design of N200, N500, and N1,000 denominations, ad infinitum. This is in line with international best practices and to forestall a repeat of earlier experiences. 

“Thus, all banknotes issued by the Central Bank of Nigeria (CBN), in accordance with Section 20(5) of the CBN Act 2007, will continue to remain legal tender, ad infinitum, even beyond the initial December 31, 2023, deadline. The Central Bank of Nigeria is working with the relevant authorities to vacate the subsisting court ruling on the same subject.” 

The CBN added that all its branches across the country will continue to issue and accept all denominations of Nigerian banknotes, old and redesigned, to and from banks. 

The apex bank also urged the public to continue to accept all Naira banknotes (old or redesigned) for day-to-day transactions, as well as embrace alternative modes of payments.

CBN To Allow Old Design Naira Banknotes As Legal Tender, Ad Infinitum… https://t.co/ukHSjfXt9v pic.twitter.com/7l9Oita9Am

— Central Bank of Nigeria (@cenbank) November 14, 2023

Story background

In October of last year, the central bank made a noteworthy announcement, revealing that President Muhammadu Buhari had granted authorization for the issuance of new naira notes, set to take effect from December 15, 2022. The redesigned banknotes, specifically the denominations of N200, N500, and N1,000, were slated for production and circulation.

As part of this initiative, the central bank declared that all existing currencies would lose their legal tender status starting from January 2023. Simultaneously, commercial banks were instructed to cease charging fees on cash deposits with immediate effect. 

The decision to embark on this currency overhaul was motivated by various factors, including the growing ease and risk of counterfeiting and an exacerbating shortage of clean and fit banknotes in circulation, according to the financial regulatory authority. 

However, what unfolded following the implementation of the initiative was unprecedented. The naira redesign which also was initiated to curtail vote-buying and money laundering among other ills, unleashed chaos, crippling economic activities as the new naira notes became scarce amid high demand. 

It took several court orders to force the CBN to extend the deadlines, allowing both the new and the old naira notes to co-circulate. The governors of three northern states—Kogi, Kaduna, and Zamfara—took legal action against the federal government, bringing the case to the Supreme Court. They sought to compel the CBN to reverse its policy on the new naira notes, advocating for the coexistence of the new and old notes. The governors argued that the policy had adverse effects on the economy, leading to significant hardships for the Nigerian populace.

In response to the case, the Supreme Court issued a ruling instructing the federal government to suspend the implementation of the February 10 deadline until the case could be thoroughly examined and determined. The court set a date for the resolution of the case on February 15.

However, despite the Supreme Court’s subsequent judgment, barring the central bank from implementing its February 10 deadline for the phasing out of old notes, the financial regulator was adamant. The Supreme Court on March 3 nullified the policy, calling it an affront to the constitution. It therefore set December 31, 2023, as the deadline for phasing out the old notes.