Multiple FX Windows Cost Nigeria 3% of GDP, Cardoso Says

Nigeria lost about three per cent of its gross domestic product to multiple foreign exchange windows, Central Bank of Nigeria Governor Olayemi Cardoso has said. He put the losses from the fuel subsidy regime at about 2.2 per cent of GDP, meaning the two distortions together cost the country roughly 5.2 per cent of GDP.

Mr Cardoso spoke in Abuja on Tuesday while answering questions after the 307th meeting of the Monetary Policy Committee. The committee cut the benchmark Monetary Policy Rate to 23 per cent from 26.5 per cent, a decision the governor described as an important operational realignment aimed at strengthening monetary policy transmission.

Bigger Than Fuel Subsidy

Mr Cardoso compared the cost of the old exchange rate system to the fuel subsidy, which he said was already a staggering amount of money. "The losses from fuel subsidy were in region of 2.2 per cent, that is a staggering amount of money. The losses that we were making as a result of these multiple exchange rate windows was more. It was 3 per cent of GDP. So between those, you had 5.2 per cent of GDP lost," he said.

Before the CBN introduced FX reforms in 2023 to unify exchange rates, Nigeria had different channels through which dollars could be bought and sold. Different rates applied to different users and transactions.

Closing the Gaps

The governor said the bank has moved away from that system. "We are coming from a bad place. We were able to take the bank back to its core mandate. We had a dysfunctional foreign exchange market where there were multiplicities of rates, depending on who you knew. We have succeeded in closing those gaps, unifying exchange rates," he said.

He said the shift to a willing-buyer, willing-seller framework had removed what he called a major distortion in the economy, one that allowed access to foreign exchange at different rates depending on the window available to a participant.

"Obviously, from our perspective, we are happy, very pleased that we've been able to literally eliminate that distortion, and that a system of willing buyer, willing seller, which allowed transparency and allowed the market to find its own level, is where we are today," Mr Cardoso said.

Policy Reset and Bank Recapitalisation

The CBN said its reforms have improved Nigeria's macroeconomic conditions. The latest policy reset is meant to strengthen how monetary policy operates without abandoning the bank's focus on inflation.

Reflecting on the results of the apex bank's monetary policies over the past three years, Mr Cardoso expressed confidence in the direction taken. He cited the return of Nigerian banks to their core mandates after recapitalisation and stability in the foreign exchange markets.

Unifying the FX market formed part of broader reforms aimed at letting market forces determine exchange rates and improving transparency in foreign exchange transactions. Mr Cardoso said the reform was necessary because the losses from the different exchange rate windows were unsustainable.

For Nigerian businesses and consumers, a single, market-driven exchange rate reduces the arbitrage and uncertainty that came with guessing which window offered the best rate. That transparency is central to how the CBN now wants the naira to be priced.