The Naira Holds Steady: How Cardoso's CBN Is Defying the Skeptics

For much of the past decade, the Nigerian naira has been synonymous with volatility. From the fixed exchange rate regime of the Goodluck Jonathan years through the multiple exchange rate windows of the Muhammadu Buhari administration, the currency was a barometer of policy inconsistency and market distrust. By mid-2023, the parallel market rate had diverged so sharply from the official rate that economists warned of an imminent full-blown currency crisis.

Today, the picture looks markedly different. The naira is trading at approximately 1,520 per dollar on the parallel market and 1,505 per dollar at the official Nigerian Autonomous Foreign Exchange Market window — a differential of just one percent. That convergence, achieved under the stewardship of Central Bank Governor Olayemi Cardoso, represents one of the most significant policy successes of the Tinubu administration and a vindication of the decision to unify Nigeria's exchange rate windows.

"We have moved from a system of opacity and arbitrage to one of transparency and market-determined pricing," Cardoso said during the CBN's first-quarter monetary policy briefing in March. "The exchange rate is now a signal, not a fiction."

The Road to Stability

The unification of the exchange rate, announced by President Tinubu in June 2023, was the foundational act that made subsequent stability possible. Prior to unification, Nigeria operated at least four separate exchange rate regimes: the official CBN window, the NAFEX window, the bi-weekly Retail SMIS window, and the parallel market. The differentials were staggering — at one point in 2023, the official rate was 461 naira to the dollar while the parallel market rate hovered around 750.

The immediate aftermath of unification was painful. The naira depreciated sharply, losing approximately 40 percent of its value in the three months following the announcement. Import costs surged, inflation spiked, and businesses that had grown accustomed to accessing dollars at preferential rates found themselves exposed to market realities.

Cardoso, who was appointed CBN governor in September 2023, inherited a central bank in crisis. His predecessor, Godwin Emefiele, had been suspended and subsequently arrested over allegations of financial impropriety, and the institution's credibility was at its lowest ebb in decades. Cardoso's first priority was restoring institutional integrity — clearing a backlog of unfulfilled foreign exchange obligations estimated at $7 billion, strengthening the bank's risk management framework, and rebuilding relationships with correspondent banks.

The clearance of the FX backlog, completed in phases between December 2023 and June 2024, was a turning point. International banks that had restricted correspondent banking relationships with Nigerian lenders began to re-engage, easing the flow of trade finance. The CBN also introduced a series of operational reforms, including the automation of the NAFEX matching engine, the publication of daily FX turnover data, and the establishment of a market advisory committee comprising commercial bank executives and Bureau de Change operators.

Policy Coordination and Rate Decisions

The Monetary Policy Committee has maintained a hawkish posture throughout the stabilisation period. After raising the benchmark interest rate from 18.75 percent to 26.25 percent between July 2023 and February 2025 — one of the most aggressive tightening cycles in Nigerian history — the MPC has held rates steady through the first quarter of 2026, citing the need to consolidate the gains in exchange rate stability while allowing inflation to continue its downward trajectory.

Inflation has responded, albeit gradually. Headline inflation peaked at 34.8 percent in December 2024 before declining to 26.2 percent by March 2026. Food inflation, which had been the primary driver of overall price pressures, moderated from 40.1 percent to 32.5 percent over the same period. The CBN projects that headline inflation could fall below 20 percent by the fourth quarter of 2026, assuming stable food supply conditions and continued fiscal discipline.

"The MPC is in a delicate balancing act," said Dr. Ifeanyi Odili, a macroeconomist at the University of Lagos. "They cannot cut rates too quickly for fear of reigniting currency pressures, but they also cannot maintain excessively high rates indefinitely without choking economic growth. The current hold pattern is appropriate."

The Diaspora Bond and Capital Inflows

One of the Cardoso CBN's most innovative interventions has been the launch of the Nigeria Diaspora Bond in November 2025. The $2.5 billion bond, targeting the estimated 20 million Nigerians living abroad, offered a coupon rate of 9.5 percent — significantly above comparable sovereign yields from Ghana, Kenya, or South Africa. The bond was oversubscribed by a factor of 2.3, with approximately $5.75 billion in orders from investors in the United Kingdom, the United States, Canada, and the Gulf states.

The success of the diaspora bond has had a multiplier effect. Remittance inflows through official channels increased by 34 percent in the first quarter of 2026, as the CBN's liberalised remittance framework — which allows recipients to receive dollars directly rather than naira — encouraged more Nigerians abroad to use formal channels. Total diaspora remittances are projected to reach $24 billion in 2026, up from $19.2 billion in 2024.

Portfolio inflows have also picked up. Foreign holdings of Nigerian government bonds increased from approximately $1.8 billion in mid-2024 to $4.2 billion by March 2026, reflecting renewed confidence in the country's debt management and the improving yield environment. JPMorgan reinstated Nigeria on its Government Bond Index-Emerging Markets watchlist in January 2026, a move that analysts say could attract an additional $3 billion to $5 billion in passive fund flows if full inclusion is achieved.

Structural Challenges Remain

Despite the progress, significant structural vulnerabilities persist. Nigeria's import bill remains high, driven largely by machinery, chemicals, and pharmaceutical products. The current account balance has swung between surplus and deficit quarters, reflecting the volatility of oil prices and production volumes. Capital outflows during periods of global risk aversion — such as the market turbulence triggered by geopolitical tensions in the Middle East in late 2025 — demonstrate that the naira remains vulnerable to external shocks.

The banking sector, while capitalised above regulatory minimums, faces elevated non-performing loan ratios in the oil and gas and real estate sectors. The Asset Management Corporation of Nigeria reported that NPLs in the commercial banking sector stood at 11.2 percent as of December 2025, above the 5 percent regulatory threshold, though the CBN has granted temporary forbearance to lenders with credible recapitalisation plans.

Furthermore, the parallel market, while closely aligned with the official rate, has not been entirely eliminated. Bureau de Change operators in Lagos and Abuja report that demand for physical dollars remains strong, particularly for travel, medical expenses, and education fees — categories that the CBN's formal windows have been slow to serve adequately.

The Verdict

At a time when several African currencies — including the Ghanaian cedi, the Kenyan shilling, and the Ethiopian birr — have faced periods of acute stress, the naira's stabilisation stands out as a notable achievement. The CBN's combination of exchange rate unification, monetary tightening, institutional reform, and innovative capital mobilisation has created a foundation for sustained stability.

Whether that stability endures will depend on factors beyond the central bank's control: the trajectory of oil prices, the pace of non-oil export growth, the government's fiscal discipline, and the broader geopolitical environment. But for now, the naira's resilience offers a measure of cautious optimism in an economy still navigating the turbulence of structural reform.

As Dr. Odili put it: "We are not out of the woods yet. But we can at least see the clearing ahead."