It has been reported widely that the Central Bank of Nigeria, CBN, has directed banks and other financial institutions to stop selling treasury bills to individuals and small firms with effect from November 29th, 2019. According to the various publications, the reason for the directive was that the high rates of treasury bills were breeding “economic laziness” among Nigerians.

The directive will have far-reaching implications for the Nigerian financial system. Come to think about it, who will blame Nigerians for being smart enough to pile their money in treasury bills when inflation is trending in double digits, where there are no investment opportunities given the lack of infrastructures and enabling environment?

It is often said that when two elephants fight, it is the ground that suffers. It is not unlikely that this directive is a result of lobbying by banks which stand to gain by it. From all indications, the directive will punish the individual Nigerian while enriching the banks, as usual.

Increase in demand for fixed deposit accounts

With the directive in effect, the next option will be for individuals to keep their money in fixed deposit accounts in banks. The increased demand for fixed deposit accounts will push down the interest that banks will offer such individuals. The banks, will then turn around and invest the cumulative fixed deposit balances into the same treasury bills, thereby making gains from the spread. Positive gains to the banks and not so positive for the individual investors.

Increase in the demand for FGN Savings Bond

About two years ago, the Federal Government of Nigeria, through the Debt Management Office, DMO, introduced the FGN savings bond, as a means to avail individuals and small firms of the opportunity to participate in the Nigerian bond market. Though the demand has been impressive, the directive to bar individuals and small firms from investing in treasury bills will push them into FGN Savings Bonds. The implication of this is that such bonds will begin to attract lower interest rates, thereby reducing the cost of borrowing incurred by the government. This is a positive effect.

[READ MORE: CBN sets up committee to recover N36 billion credit facility]

Capital flight

One dangerous implication of the directive is that it may lead to capital flight. Technology and the internet have made it very easy to undertake cross border investment and money movement. Unlike commodities, trading can be restricted by closing the border, financial market investments cannot be so easily restricted. There are countries and markets that are willing to welcome and absorb Nigerian investors into their market. In Africa, for example, such markets as Ghana, Kenya, Mauritius, to mention but a few, can present profitable alternatives, especially when their currency rates are relatively better than that of Nigeria. Students of History of Economics will bear witness that directives such as this led to capital flight. For example, after the French government introduced the wealth tax, the country experienced a large exodus of wealthy individuals and their money.

Loss of control of money supply

Treasury bills are not only used to finance government deficits; they could also be used as a means to control money supply, as in when broadly defined. When used with open market operations, treasuries act as an instrument of monetary policy. With individuals out of the treasury bill market, it may introduce some difficulty in using this potent instrument to mop up excess liquidity when they arise. This is one negative effect.

What is capital flight?

Capital flight can be variously defined and may result from a litany of reasons or causes. According to Oxford Dictionary, “capital flight is money transferred abroad to avoid taxes or inflation, achieve better investment returns, or to provide for possible emigration.” The UK Overseas Development Institute defines capital flight as “the outflow of resident capital which is motivated by economic and political uncertainty.”

Effects of capital flight

In most cases, capital flight has negative consequences for the country from which the capital flies. The flight of capital reduces the economic strength of a country. It can also lead to a slowdown of economic developments of certain and important sectors of the economy. Capital flight has been known to affect the purchasing power of the affected country.

Standard chartered

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Do not let this capital fly out

The Nigerian economy has been a victim of capital flight since September 26th 1986, when the IMF deceived the then government in power to devalue the Naira from N0.5 to N4 to the dollar. This new directive will excruciate the troubling situation. Rather than punishing the poor individual Nigerians and blessing the banks, the CBN should look for a better way to make treasury bills less attractive. Efforts should be made to curb inflation, create awareness of alternative investment outlets like money market funds, FGN Savings Bonds, and by reducing the CBN MPR rate.


  1. Dear Uchenna, can you please show us the circular from the CBN to banks and other financial institutions to stop selling treasury bills to individuals and small firms from November 29th, 2019?


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