CBN’s Currency Swap Exercise: An Economic Misfire

The Central Bank of Nigeria’s Currency Swap Exercise: An Economic Misstep

The Central Bank of Nigeria’s (CBN) currency swap exercise has been a subject of intense scrutiny and debate. Aimed at replacing over N3 trillion notes with new ones, this economic maneuver was initially touted as a critical anti-inflationary measure. Yet, as the exercise unfolded, the rationale behind it morphed, with the CBN increasingly leaning on the benefits of financial digitization and a cashless economy as its justification.

The Shifting Rationale and Growing Skepticism

However, the CBN’s shifting explanations raised eyebrows among economists and policy analysts. The lack of solid evidence underpinning the plan and its divergence from global practices led to questions about its practicality. As the country grappled with a severe currency shortage, the CBN found itself in the crosshairs of criticism. In a bid to deflect, it pointed fingers at bandits and politicians, suggesting that curtailing their access to funds would yield economic benefits.

Unintended Consequences

Despite these justifications, the currency swap exercise had a deep and damaging impact on the Nigerian economy. It stung the informal economy, hampered credit creation, deterred business investment, and dented consumer spending – all running counter to the ultimate goal of economic growth and development. The CBN, under Yemi Cardoso’s leadership, was accused of lying about the supply of cash to banks, further fuelling distrust and skepticism.

Lessons from the Debacle

The CBN’s failure underscores a troubling disconnection from economic realities and facts. Equally concerning is its seeming inability to acknowledge mistakes and pivot when necessary. The debacle serves as a stark reminder for current economic managers about the importance of appointing qualified individuals to key positions, grounding policies in proven facts, and regularly evaluating policies for their effectiveness and alignment with economic objectives.

Moreover, the severe crunch in the supply of foreign exchange forex in Nigeria, the impact on the Naira’s value, and the challenges in boosting organic forex flows from Nigeria’s oil exports highlight the urgent need to rethink the Domestic Crude Allocation (DCA) policy. The policy has led to a drastic reduction in oil production and a decline in forex inflows, further depreciating the Naira against the U.S. dollar. The CBN’s currency swap exercise, thus, stands as a glaring example of Nigeria’s economic policy failure.

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