Who is afraid of Emefiele as CBN governor?

 I read with interest an article in one of the national newspaper and was amused by the apparent lack of understanding of how monetary policy is conducted in Nigeria. The article was calling on Senators to reject Godwin Emefiele on the ground that he would make the conduct of monetary policy a Zenith Bank affair and that the CBN would become a branch of Zenith Bank.

It is sad that a commentator could trivialize an issue that affects the generality of Nigerians in such a manner that displayed total lack of understanding of the issues. Fortunately, Zenith Bank Managing Director is not the first Nigerian bank Managing Director to be so appointed. What the writer did not remind the Senate is the fact that Sanusi Lamido Sanusi, the suspended Governor of the CBN was appointed CBN governor designate from First Bank Nigeria limited when he had just about a year experience as a Bank Managing Director. What the writer of this highly prejudiced piece did not also reminded the Senate is the fact that Mr. Joseph Sanusi was appointed CBN governor from First Bank PLC. He probably did not remember to inform the senate that Paul Oguma was Managing Director of Union Bank when he was appointed Governor of Central Bank of Nigeria.

He probably forgot or did not know that there is a monetary policy committee in place at the CBN. The committee is made up of the board of CBN governors and other eminent Nigerians from out side the bank. Monetary Policy issues are handled by the committee and decisions are taken based on the outcome of votes cast after each member has advanced his/her argument. The records of proceedings of the committee’s meetings are made public and the CBN puts same on its website for those who care to read them.

How then can any Nigerian who understands the tread in monetary policy issue say that the confirmation of Emifiele as CBN Governor will jeopardize the nation’s economy and make the CBN a branch of Zenith Bank?

Is this “famous economist” saying that monetary policy under Sanusi Lamido Sanusi was conducted at First Bank? Was CBN under Joseph Sanusi and Lamido Sanusi answerable to First Bank? This certainly was not the case. The CBN that I know under Joseph Sanusi did more serious work on banks regulation than the CBN under Lamido Sanusi.

Joseph Sanusi’s regulatory policy fined First Generation banks millions of naira for foreign exchange violation. He was the Governor who caused the foreign exchange licences of 21 banks to be revoked with a stroke of the pen and heavens did not fall. The CBN under Joseph Sanusi removed some powerful Nigerians from the board of banks without any fanfare.

It is share ignorance for any one to suggest that appointing a Nigerian bank Managing Director will compromise the integrity of the monetary policy of the CBN.

Those who have been following CBN’s monetary policy over the years will realize that the objectives of CBN monetary policy have remained the attainment of internal and external balance of payments. What differentiates the era of any particular Governor is his emphasis on techniques/instruments to achieve these objectives which have changed year in year out.

Looking at the macro economic policies of government and the monetary policies that were needed to compliment them, there have been two major phases in the pursuit of monetary policy, namely, before and after 1986. The pre-1986 (SAP) placed emphasis on direct monetary controls, while the second (post SAP) relies on market mechanisms. Since the deregulation of the financial market, monetary policy has been driven by market forces with occasional intervention by the CBN.

The conduct of monetary policy by the Central Bank of Nigeria since 2008 for instance has been designed to: influence the growth of money supply consistent with the required aggregate Gross Domestic Product (GDP) growth rate, ensure financial stability, maintain a stable and competitive exchange rate of the naira, and achieve positive real interest rates.

The conduct of monetary policy in recent time has been largely influenced by the global financial crisis which started in 2007 in the U.S. and spread to other regions and emerging markets including Nigeria. The crisis created liquidity crisis in the banking system, large quantum of non-performing credits, large capital outflows and pressure on the exchange rate, decline in oil prices and falling external reserves, sharp drop in government revenue, huge fiscal injections and collapse of the capital market.
As a result of the global financial crisis, the Bank largely adopted the policy of monetary easing to address the problem of liquidity shortages in the banking system from September 2008 to September 2010.

The monetary policy easing measures taken during the period included: Stoppage of aggressive liquidity mop-up since September 18, 2008; progressive reduction of monetary policy rate (MPR) from 10.25 to 6.0 per cent; reduction of cash reserve requirement (CRR) from 4.0 to 2.0 and 1.0 per cent; reduction of liquidity ratio (LR) from 40.0 to 30.0, and 25.0 per cent; introduction of Expanded Discount Window (EDW) to increase DMB’s access to facilities from the CBN, and by July 2009 was replaced with CBN Guarantee of inter-bank transactions; reduction of Net Open Position (NOP) limit of deposit money banks from 20.00 to 10.00, 5.00 and 1.00 per cent, Injection of N620 billion as tier 2 capital in 8 troubled banks.

Following the restoration of stability and re-emergence of liquidity surfeit in the banking system, the CBN adopted a tightening stance from September 2010 to December 2011. The monetary policy easing measures coupled with huge fiscal expansion put much pressure on inflation, exchange rate and external reserves.

To curtail these threats the stance of monetary policy changed from monetary easing to tightening, from September 2010 to December 2011 and the following monetary policy actions were taken during the period: The Resumption of active Open Market Operations for the purpose of targeted liquidity management Progressive increase in the monetary policy rate (MPR) from 6.00 to 12.00 per cent Increase in the Cash Reserve Requirement (CRR) from 1.00 to 2.00, 4.00 and 8.00 per cent; more recently the increase of CRR of public funds to 75 per cent.