On Tuesday, 1 December 2020, the Central Bank of Nigeria (CBN), in a circular, announced the introduction of a monetary instrument called “Special Bills” into the Nigerian economy. This is geared towards deepening the financial markets while availing the monetary authority with an additional liquidity management tool to run the recessing economy.
According to the circular, “the CBN will continue to ensure optimal regulation of systemic liquidity and promote efficient financial markets in support of economic recovery and sustained growth.”
With this new Bill, the CBN will monitor the excess Cash Reserve Requirement balances of local banks by offering them short-dated zero-coupon (or zero-interest) special bills. The apex bank will also be using this instrument to mop up excess cash that is lying dormant. This would invariably make cash available for SMEs, further driving an increase in economic activities.
In the middle of November 2020, the National Bureau of Statistics announced that Nigeria’s economy slipped into its second recession in five years as its Gross Domestic Product (GDP) contracted for the second consecutive quarter. The negative growth of 3.62 percent in the third quarter of 2020 which was recorded by the country has prompted the CBN to implement monetary policies that could help in reviving Africa’s largest economy.
The CBN “Special Bill” features the following:
A Tenor of 90 days;
- Zero-coupon, applicable yield at issuance will be determined by the CBN;
- The instrument will be tradable amongst banks, retail and institutional investors;
- The instrument shall not be accepted for repurchase agreement transactions with the CBN and shall not be discountable at the CBN window; and
- The instrument will qualify as liquid assets in the computation of liquidity ratio for deposit money banks.