Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, has emphasised that the bank’s decision to float the naira, amid considerable public criticism, was inevitable to “bring the official exchange rate closer to market reality”.
Cardoso said the disparity between the official and parallel rates had encouraged arbitrage and speculation, eroding trust in the market.
He made the comments while addressing members of the Harvard Club of Nigeria in Lagos on “Leadership in Challenging Times: Restoring Credibility, Building Trust, and Containing Inflation,” at the weekend in Lagos.
Cardoso insisted that without credibility, no policy, however well-intentioned, could succeed.
He said, “Credibility is earned by consistency. The decision to close this gap, while painful in the short term, sent a message to market participants that the CBN was committed to transparency and sound monetary policy.”
He pointed out that speculative trading had been minimised while stability was gradually returning to the currency markets.
The CBN governor explained that the recent decision to implement the Electronic Foreign Exchange Matching System (EFEMS) was to rebuild trust, saying this is essential to central banking.
Last week, the central bank announced the introduction of EFEMS for Foreign Exchange (FX) transactions in the Nigerian Foreign Exchange Market (NFEM).
The new system, which was to be implemented not later than December 01, 2024, and preceded by a two-week test run in November, was expected to enhance governance and transparency, and facilitate a market-driven exchange rate that will be accessible to the public.
Cardoso said, “Trust is the currency of central banking. If the public loses trust in the institution, the efficacy of its policies diminishes. Our decision to implement the Electronic Foreign Exchange Matching System (EFEMS) is rooted in this understanding.
“By enhancing transparency and providing more accurate oversight of forex transactions, we send a strong signal that the CBN is serious about fair and efficient markets.”
Cardoso, who is one year in office as CBN Governor this week, told his audience that leadership, especially at the central bank, often required making difficult and sometimes unpopular decisions, adding that the bank remains a listening institution, unafraid to reconsider decisions if they fail to meet its original objectives.
He said, “In the face of economic challenges, it is imperative to focus on core objectives—restoring the credibility of the institution, building trust in the financial system, and, most critically, containing inflation.
“These are not just strategic goals; they are foundational to any meaningful recovery.”
Speaking on his journey so far, Cardoso recalled that upon assumption of duty, he understood that the credibility of the CBN was the bedrock of any action by his team.
He said containing inflation remained the bank’s core mission, acknowledging that the CBN is yet to meet its target.
However, he stressed that recent declines reported by the National Bureau of Statistics (NBS) in July and August 2024 showed that the CBN was moving in the right direction.
The CBN governor explained that the bank’s decision to raise the Monetary Policy Rate (MPR) to 27.25 per cent was a bold move. He said higher interest rates, while painful for borrowers, were necessary to curb excess money in circulation and control inflation.
He said, “Leadership is about making hard choices to secure long-term stability over short-term comfort in moments like these.”
Highlighting key leadership lessons, Cardoso said, “Leading through challenging times means avoiding the temptation to take on too many initiatives. The central bank must focus on its core mandate—price stability. It is easy to become distracted by various political and economic pressures, but as a leader, one must prioritise.
“Effective communication is as important as the right policy. Clear and open communication fosters trust. From publishing the results of the Dutch Auction to ensuring regular updates on economic data, transparency has been our guiding principle.”
He added, “Trust is built on the belief that a central bank will take the necessary steps to ensure economic stability, even when those steps are uncomfortable or politically contentious.”
James Emejo and Nume Ekeghe
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