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The central bank act cannot prioritise the bank’s operational independence, while the entire process of appointing the bank’s governor prioritises his fealty to the political authority saddled with this responsibility. If the next twenty years of the Central Bank Act is to leave us with a more competent manager of domestic monetary policy, then we must look to fix the process through which governors emerge. The abecedarian notion that the “banker” in the description of a “commercial banker” is the same as that in the description of a “central banker” must be the first to go.
Next year, the Central Bank of Nigeria’s (CBN) enabling law turns twenty. Its scorecard is mixed. As the product of a democratic civilian government (the 1999 statute that it replaced was largely based on earlier military-era decrees), the CBN Act 2007 sought to modernise the legal framework for central banking in Nigeria, by strengthening the apex bank’s institutional independence, and aligning Nigeria’s monetary framework with global best practices. While the bank’s goals have remained unchanged in its enabling act’s several restatements, the 2007 Act provides clearer policy orientation toward price stability as a primary goal and explicitly strengthened the CBN’s independence.
Eight years of the Buhari administration, however, pushed these premises to their breaking points. While we have no evidence of the governor and the bank taking instructions from the political authority in performing its functions, the last two decades have not reinforced the sense of a central bank with significantly increased statutory independence and reduced political interference. If nothing at all, for too long, the CBN’s continued funding of the Federal Government’s annual deficits warped the economy’s outcomes. The 2007 Act’s limit on such advances to 5 per cent of the Federal Government’s actual revenue in the previous year, its requirement that the advances must be repaid within the same financial year, and prohibition of further lending in the event of a repayment default, had far less moral weight than an assistant teacher’s cautionary screams in the kindergarten playground.
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Nor do we have public evidence that the CBN governor appears at least twice every year before the appropriate committees of the National Assembly. The law requires him (CBN governors have all been men, thus far, unfortunately) to brief committee members, at these appearances, on the conduct of monetary policy, the state of the economy, and other related matters.
There are, for example, useful governance arguments to be made for separating the holder of the office of governor of the CBN from that of the chair of the bank’s board. In the nine years and six days that Mr Emefiele was governor, three of these arguments leapt to the fore: reduced internal oversight of the governor, concentration of his authority, and potential governance vulnerabilities during crises.
For these, and a number of other reasons, efforts have been made over the years to improve the 2007 Act, and hopefully, by extension, the apex bank’s management of the economy. Much of these reform efforts, informed by the incalculable injury to the economy by the imperial governorate of Mr Godwin Ifeanyichukwu Emefiele, have focussed (wrongly, in my view) on improvements to the central bank’s governance structure. There are, for example, useful governance arguments to be made for separating the holder of the office of governor of the CBN from that of the chair of the bank’s board. In the nine years and six days that Mr Emefiele was governor, three of these arguments leapt to the fore: reduced internal oversight of the governor, concentration of his authority, and potential governance vulnerabilities during crises.
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Against, these, the examples of the Bank of England, the European Central Bank, and the US Federal Reserve, where the governors effectively head their respective systems, make an even stronger case in a central bank for clear leadership structure, faster decision-making processes, and strong policy coherence in the management of monetary policy.
Still, all of these is to quibble. The central bank act cannot prioritise the bank’s operational independence, while the entire process of appointing the bank’s governor prioritises his fealty to the political authority saddled with this responsibility. If the next twenty years of the Central Bank Act is to leave us with a more competent manager of domestic monetary policy, then we must look to fix the process through which governors emerge. The abecedarian notion that the “banker” in the description of a “commercial banker” is the same as that in the description of a “central banker” must be the first to go.
The strongest case though is for reform of the CBN’s organisation at the state level. Having 36 heads of CBN outposts in the respective state capitals whose primary responsibility is to manage cash for the local banking community and protocol arrangements for when the governor comes calling is system abuse. It would be far better to consolidate these outposts into six regional groupings, the heads of three of which on a rotating basis shall be members of the MPC.
Commercial bankers raise deposits and get promoted for the relationship management skills that drive higher deposits and loans balances. Central bankers manage an economy’s money supply and interest rates to achieve stable prices – low inflation rates in other words. Because people actually go to school to learn about the latter, it helps if we always recruit some of the best qualified monetary policy economists (minimum of a PhD) for this role. The monetary policy committee should be similarly depoliticised and professionalised. Perhaps there is an additional case to be made for representation reflective of the economy’s make-up on the CBN’s policy committee.
The strongest case though is for reform of the CBN’s organisation at the state level. Having 36 heads of CBN outposts in the respective state capitals whose primary responsibility is to manage cash for the local banking community and protocol arrangements for when the governor comes calling is system abuse. It would be far better to consolidate these outposts into six regional groupings, the heads of three of which on a rotating basis shall be members of the MPC. In this capacity, the apex bank’s regional heads should bring insights from the regions into policy formulation. But they cannot bring insights if they do not know what they are looking for. This re-characterisation of the role of the CBN’s representatives in the regions, thus, goes beyond both the contribution of the Federal Reserve’s 12 regional banks to the US’ central bank’s Beige Book, and of the Bank of England’s regional agents to policymaking.
Still, the only guarantee that these regional heads would be function-compliant depends on the CBN governor always being the most competent person that Nigeria can find each time we go a-shopping.
Uddin Ifeanyi, a journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
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