Curbing CBN power is an open invitation to economic anarchy

By Omoh Gabriel
Nigeria is a country of paradox. Every Nigerian, the high and the low wants to have their way as long as it please them. The political class are worse, they sing discordant tune in issues where they have vested interest. It is never about the welfare and general good of Nigeria but about selfish interest of the privileged few. It is no surprise that the Minister of Finance is calling on the National Assembly to reduce the powers of the governor of the Central Bank of Nigeria (CBN). Her reason is that the extensive powers of the governors is the disconnect between Federal Government’s monetary and fiscal policies. She pleaded with the National Assembly that conferred the powers on the CBN boss, through a legal instrument, to slash them to pave the way for checks and balances.
Kemi Adeosun call is no surprise knowing full well that the civil servants working with her have no institutional memory to advise her wisely or they just wanted a repeat of the past. They may have gone into the archive to find that under military regime the power of CBN was curtailed and it was placed under the minister’s supervision.
What this means is that the Central Bank should be brought under the supervision of the Ministry of Finance as it was before the 1999 CBN act which gave it autonomy. The minister is certainly not speaking for herself but her principals and those in government who hardly understand the workings of the economy. This government has in many instances want to borrow much more than it is permissible under the law, but the subtle resistance by the CBN that the public sector is crowding out the private sector from access to loans is to the chagrin of the minister. It is the same minister that asked the CBN to artificially set interest rate at a lower than inflation rate so that the cost of government’s domestic borrowing can be reduced.
Nigerians must be wary of policy issues trust at them by political neophytes seeking either political point or self interest. Nigerians who are old enough to remember the military era will quick to admit that the Central Bank of Nigeria has had a chequered history of autonomy since its inception in 1958, varying between autonomy and control. Economic history show that in the 1958 Act, the CBN was granted a measure of autonomy, which was gradually eroded until 1991 when the autonomy was restored. The erosion of the Bank’s autonomy between the years coincided with military interventions in politics in Nigeria. Again, the autonomy was gradually eroded until 1999 when administrative and instrument autonomy was granted to the Bank to shield it from political pressures in the implementation of policy. From the inception of the Bank, the administrative structure has been that the Governor of the CBN presides over the Board of Directors and Executive Directors or Deputy Governors had always been on the Board. This arrangement had ensured easier, smoother and faster implementation of monetary and financial policies. The Central Bank of Nigeria requires full independence in the true sense of it to enable it act appropriately. The global trends have been towards full independence for central banks.

In the course of discharging its various functions over the years, the CBN has had to grapple with major constraints. These constraints on its effectiveness are traceable to both exogenous and endogenous factors. Of particular importance, is the intermittent erosion of the discretionary power of the CBN in many vital areas of its operations.
As was in the past before the 1999 amendment of the CBN act that gave it some form of autonomy, the Federal Minister of Finance under an amendment to the CBN Act received the power to intervene in the formulation of monetary and credit policies by the CBN. The amendment Act empowered the minister on the event of a disagreement with the CBN, to take his views and those of the CBN to the Federal Executive Council for the final policy decision which the CBN would be bound to implement. As compared with the position in the original Central Bank Act (1958), therefore, the Bank after these amendments no longer enjoyed the complete autonomy in respect of monetary and credit policies. It is this position that the minister of Finance and her co travellers are advocating in the 21st century. What Nigerian and the Minister of Finance must know is that Nigeria had travelled this road before with grave consequences, what she is seeking is a situation that leaves room for conflicts that have detrimental effect on the status and effectiveness of the Central Bank of Nigeria.
Over the years, such conflicts have been evident. For instance, in the “Recurrent and Capital Estimates of the Government of the Federal Republic of Nigeria, 1974—75”, the functions of the Federal Ministry of finance were defined to include, among other things, the (a) formation (sic) of policies on Fiscal and Monetary matters; maintenance of adequate foreign exchange overseas aimed at ensuring a healthy balance of payments position; and maintenance of the internal and external value and stability of the Nigerian Currency”.
From the above listing of functions, it would appear that the Ministry of Finance was arrogating to itself the functions considered to be the prime responsibility of the CBN.
In the course of the day to day contact between officials of the CBN and those of the ministry of Finance the officers and executives of the CBN have at times been treated as if they were of subordinate status.
As regards to banking policies, there were, during the period, especially immediately after the deregulation of the economy in 1986, instances of commercial banks successfully circumventing the Central Bank by obtaining from the Ministry of Finance, approval for actions which had been judged imprudent by the Central Bank which tends to undermined the rational allocation of responsibilities among the various agencies of the public sector. The issue over which differences of views between the CBN and the Ministry of Finance have had the most far-reaching consequences arose out of the “Udoji Report”.
Following that Report, the CBN took the position that the payments of arrears of salary based on the new pay scales as was being considered, would be highly inflationary. The Bank recommended to government instead that the award made should commence with effect from the date of the acceptance of the Report by the Federal Military Government”.
For those of us who follow the trend at the time, the views of the CBN’s Board of Directors were conveyed by the Governor to the Permanent Secretary, Federal ministry of Finance but it was clear that the CBN’s recommendation did not find favour with the Ministry although a compromise was reached. Members of the Board to whom the proposed compromise solution could be communicated within the time available were unconvinced and expressed their desire that the CBN memorandum should still be submitted to the Federal Executive Council, but this was not done.
When the full Board met again on the subject, it passed a resolution in which the Ministry of Finance was told that future cases of that nature would be taken by the CBN to the Head of the Federal Military Government. From internal memos, the reaction of the Ministry conveyed in a letter from the Permanent Secretary was seen by the Board as a continuation of the confrontation with the CBN. This letter insisted that the CBN’s memorandum had been circulated to the Federal Executive Council in a form the ministry could comprehend, but added that the apparent legal position of the CBN was unfounded. It was argued that the CBN, as expected, had been consulted as financial adviser to the government, but added that the Udoji Report could not remotely be interpreted as a monetary and banking policy pursued or intended to be pursued by the Central Bank in respect of which the CBN had conditional access to the Federal Executive Council. Nigerians will recall that the inflationary trend that followed the Udoji award left a scar in the Nigerian economy.
Another and perhaps the most serious erosion of CBN’s modicum of independence ‘within’ the Government with which it was equipped at its inception as a fundamental condition for its efficient operation, arises from the so-called streamlining of the service conditions of the Central Bank with those of the entire Public service. With the CBN Amendment Decree 1970, the Federal Military Government had made the determination of salaries and conditions of service of the CBN employees subject to the stipulation of the Federal Executive Council.
The introduction of the unified salary structure following the recommendations of the Udoji Commission in effect down-graded the CBN and placed it in a competitive disadvantage in the labour market. The predictable adverse effects of the implementation of the Report on the CBN, increased difficulty in recruitment of staff of the right calibre, and accelerated increase in staff turnover among other considerations, compelled the CBN to invite Mckinsey firm of experts to make recommendations on how to restructure the CBN for efficiency and dense’ measures designed to enable the Bank recruit and retain staff of the required calibre.
It is this kind of CBN the minister of Finance is calling for in today’s complex economy.
The Central Bank of Nigeria (CBN), like most others, has the core mandate of maintaining price stability and ensuring a non-inflationary growth. The Central Bank is also a regulator, banking supervisor, and development bank. It has the responsibility to ensure a sound and stable financial system in addition to other developmental functions. These mandates and functions are peculiar to central banks in developing economies, and no other institution performs such functions. These special responsibilities are enormous and have continued to pose increasing challenges to central banks, largely because developments in the domestic and international economies create intricacies and complexities in the financial systems and the art of central banking. Indeed, the current trend of globalisation exemplified by economic and monetary unions has increased the challenges of central banking.
The effective discharge of these responsibilities requires that central banks be independent in the true sense of it, that is, shielded from the whims and caprices of politicians, free from political interferences, especially from political neophytes; have administrative independence and instrument autonomy.
In 2012, the National Assembly had muted the idea of tinkling with the CBN autonomy as a result of Governor Lamido Sanusi revelation that 25 per cent of budget overhead cost were incurred by the National Assembly, but jettisoned the plan when they realised that it will do the economy no good. The recent call by the minister of Finance for the National Assembly to curtail the powers of the CBN is turning the hand of the clock backward by self seeking politicians. Taking over the management of the CBN by politicians is an invitation to economic anarchy. The current Nigerian political class want to go out of their way to make the CBN the Idi Amin’s Uganda kind of central bank, were the language will print the Naira apology to Jimoh Ibrahim. Nigerians must ignore the call.

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