• Why calls on Cardoso to spend the buffer miss the point
Thompson Eme
When Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso addressed the BusinessDay CEO Forum in Lagos, he reported that the country’s net external reserves had risen from roughly US$3 billion before September 2023 to about US$40 billion in July 2026, while gross reserves had climbed to around US$52 billion over the same period, providing roughly ten months of import cover. He presented the increase as evidence that the difficult reforms of the past three years were yielding tangible results: foreign-exchange liquidity had improved, external buffers had strengthened, and investor confidence was returning.
The scale of the improvement naturally drew public attention, and the reaction in parts of the media has been revealing. Some commentators treated the announcement less as a policy achievement and more as proof that the authorities were sitting on idle cash while ordinary Nigerians suffered. Their question was pointed and provocative: if reserves have risen so much, why is Nigeria still borrowing, and why do major development programmes remain unfunded? In short, if reserves have grown so much, why not just use them?
The question is understandable. Many Nigerians may be asking that too, and it is legitimate. The debate, however, should not descend into a quarrel between public officials and journalists. Those raising this issue were right to express a genuine public-interest concern. Governor Cardoso and the Central Bank are equally right to insist that external reserves are a strategic buffer, not a fiscal ATM, and this article explains why.
What Reserves Are, and What They Are Not
A starting point is to understand what external reserves are not. They are not federal government revenue. They are not a savings account belonging to the Federal Ministry of Finance, nor are they funds that can be shared through the Federation Account. And they are not, in any meaningful economic sense, Nigeria’s money sitting in an ATM waiting to be cashed once a worthy project is identified.
Foreign exchange reserves are external assets held and managed by the central bank.
They include foreign-currency deposits, government securities, gold, Special Drawing Rights and Nigeria’s reserve position at the International Monetary Fund. These reserves appear on the CBN’s balance sheet, and like all balance-sheet assets, they have matching counterpart liabilities. They cannot simply be transferred to the budget or shared through the Federation Account for spending without consequences.
Think about how reserves are built in the first place. Organic accumulation happens when foreign exchange enters Nigeria through oil receipts, non-oil exports, diaspora remittances, foreign portfolio investment or other capital inflows. The Central Bank ultimately buys some of those dollars in exchange for naira. The dollars are added to the official reserve stock, while the corresponding naira enters the domestic financial system. The reserves therefore carry a matching monetary counterpart from the moment they are created.
What Spending the Reserves Did to the Nigerian Economy
One argument advanced by critics is that the previous CBN leadership, whatever its shortcomings, at least used the Bank’s money to support agriculture, manufacturing, power and other interventions. On the surface, that sounds like a valid argument, but it is incomplete because it overlooks the consequences. We need to remind ourselves of the scale of what was done, where it left the economy, and what repeating it today would mean. Nigerians can then decide whether that is a path worth returning to.
ºBetween May 2015 and December 2022, outstanding Ways and Means advances from the CBN to the Federal Government rose from about N790 billion to N23.7 trillion, through repeated breaches of the statutory limit of five per cent of the Federal Government’s actual revenue in the preceding year. Of this amount, N22.72 trillion was subsequently securitised and incorporated into the Federal Government’s domestic debt stock, according to Debt Management Office records. Over roughly the same period, the CBN reportedly disbursed approximately N10.3 trillion through its development-finance programmes. Together, these amounted to more than N33 trillion in direct fiscal financing and quasi-fiscal sectoral interventions.
What was the consequence? Disaster. That scale of intervention flooded the economy with more naira liquidity than the domestic economy could absorb. Excess liquidity, once created, does not evaporate: it leaks away in search of the limited supply of food, goods, and services in the economy, pushing prices aggressively upward. The rest migrated into the foreign-exchange market, scrambling for dollars to import machinery and inputs, or to protect naira savings by converting them into dollars.
The CBN, at the time, then tried to contain the pressure through administrative FX allocation, import restrictions, and multiple exchange-rate windows. But suppressing the official dollar price did not suppress the underlying demand driving it. The pressure simply resurfaced elsewhere: in chronic FX scarcity, a widening parallel-market premium, which widened to as much as 80 per cent at one point, a mounting stock of unmet foreign-exchange obligations estimated at over US$7 billion, and increasing reliance on swaps and forward contracts, while repeated interventions steadily weakened the external buffer.
The costs showed up not only in the headline numbers; they were also visible beneath the hood. By the end of 2023, gross reserves stood at approximately US$33 billion, a seemingly respectable figure, more than three months of import cover. But the more important measure of the country’s freely usable external buffer, the net foreign-exchange reserves, which strip the gross figure of short-term liabilities such as swaps and forward obligations, had collapsed to just US$3 billion.
By December 2024, headline inflation had reached 34.8 per cent under the National Bureau of Statistics series then in use. Monetary financing was not the only cause; other factors also contributed. But the IMF identified high inflation, weaknesses in monetary-policy transmission and dysfunction in the foreign-exchange market as important elements of the broader deterioration.
The Counterfactual We Cannot Afford Today
Now imagine, for the sake of argument, that the Cardoso-led CBN yielded to this pressure, reversed course and conducted an operation of a magnitude comparable to that of the previous era. This counterfactual is better imagined on paper than experienced by Nigerians in practice. Let us demonstrate concretely what that could mean.
Official CBN data show that broad money, measured by M2, stood at approximately N133.24 trillion in June 2026. If the CBN were now to inject another N33 trillion, equivalent to the combined headline scale of the previous fiscal and quasi-fiscal development support interventions, without sterilising it elsewhere in the financial system, broad money would rise mechanically from approximately N133 trillion to N166 trillion. That would represent an immediate 25 per cent increase in the broad-money stock, before accounting for any second-round credit expansion by banks.
Invoking Fisher’s quantity theory of money, which holds that the money stock multiplied by its velocity of circulation must equal the price level multiplied by real output, a 25 per cent expansion in the money stock would, holding velocity and output constant, put upward pressure on inflation of roughly the same order. Given current headline inflation of 15.4 per cent, and despite the relatively tight monetary-policy stance now in place, inflation could have been trending above 40 per cent by now, 15.4 per cent plus 25 per cent equals 40.4 per cent, all else being equal.
This seemingly hypothetical, but previously implemented, operation would amount to monetary financing in another guise, a relic of the very mismanagement that the reforms of the present CBN leadership were intended to end. Faced with the pressure such an injection creates, the CBN would be cornered into one or more of four costly remedies, each leaving Nigerians worse off. It could deplete the reserves it worked to rebuild, weakening the country’s insurance against external shocks. It could further depreciate the naira, intensifying imported inflation. It could ration foreign exchange administratively, recreating the scarcity and multiple windows of the past. Or it could mop up the liquidity through expensive open-market operations. Then markets would interpret this reserve-financed fiscal spending as evidence that monetary policy had once again lapsed into indiscipline and subordinated to fiscal dominance, discouraging investment and weakening confidence.
None of this means Nigeria’s reserves should not be used. On the contrary, they are already being used and are working hard. They support external payments and the letters of credit through which banks finance imports. They meet the country’s external debt-service obligations, protecting Nigeria from the far higher economic and reputational costs of default. They also signal external strength, influencing how investors and rating agencies assess Nigerian risk. Finally, they give the CBN room to respond when movements in the foreign-exchange market become disorderly, cushioning the naira against sudden swings. That is precisely what a buffer is for.
The Work That Remains to Be Done
The debate over the size of Nigeria’s reserves ultimately leads to a more important question: when will stability translate into improved living standards for Nigerians? After all, nobody eats GDP, and nobody eats reserve numbers either. What people care about is the price of food, the cost of transport, rent, gainful employment, access to credit, and the purchasing power of their naira. A rise in reserves is not, by itself, a sufficient measure of economic success if Nigerians cannot see a clear path from stability to better living standards. Governor Cardoso himself acknowledged this when he argued that stability is not an end in itself but a foundation for investment and economic growth.
The appropriate policy path is not to liquidate the country’s external insurance, which would risk returning the economy to instability. It is to strengthen fiscal revenues, improve the quality and efficiency of public expenditure, and sustain the macroeconomic stability that allows investment, production and job creation to thrive. In Governor Cardoso’s words: ‘You cannot be a nice guy in taking the difficult decisions to save the country. You have got to be disciplined and armed with integrity. Ultimately, in our business, it is about trust.’
When the CBN recently won the Central Banking Award for Central Bank of the Year, the organisers underscored that Governor Cardoso’s reserve performance is a genuine achievement, and that the reforms anchoring it, including exchange-rate unification, deeper FX-market liquidity, the restoration of the international usability of naira cards, and rising diaspora inflows, have become increasingly tangible and durable rather than cosmetic. But while the Governor may have won the argument for safeguarding the reserves, policymakers still owe the public a direct answer to a legitimate question: when will stability translate into prosperity?
Transitioning from stability to shared prosperity, the theme chosen by the CEO Forum itself, is the harder, longer and still unfinished task. The CBN has laid the foundations for macroeconomic stability. The baton now passes squarely to the fiscal and subnational authorities, which must convert that stability into investment, jobs and improved living standards for all Nigerians.
Dr. Eme is an economist with experience in international finance and monetary policy