For the Nigerian Senate, it is just a legislation; for the Central Bank of Nigeria (CBN), it is a defilement of its sanctity and independence; for Nigeria, it is a grave threat to its economy, and a portent of its economic quandary.
The Nigerian Senate, on 27th September, 2022, deliberated on a Bill seeking to amend the Central Bank of Nigeria (CBN) Act, 2007.
The Bill, reportedly, seeks to: 1. Provide for the Appointment of an outsider as the chairman of CBN Board of Directors; 2. Fix the remuneration of board members; and, 3. Approve the annual budget to be submitted to the National Assembly (NASS) for consideration.
For the CBN, the Bill is a treacherous attempt at grisly defiling its constitutional sanctity and independence, which serve it with all the powers it requires to regulate fiscal and monetary policies for the sustenance, growth and prosperity of the country’s economy according to domestic and global existing and emerging imperatives.
For everyone concerned with the establishment and sustenance of a seamless linkage between impeccable monetary and fiscal policies and a sound economy, the proposed amendments will rob the CBN of its operational independence, in contravention of the existing Section 1(3) of CBN Act 2007 which states “…the Bank shall be an independent body in the discharge of its functions.”
With this Bill, it is more glaring now that the Federal Legislature, in possible concert with the wider political class, for whatever motive, is hell-bent on jeopardizing the growth and performance of the country’s economy by whittling down the powers of the institution saddled with the statutory duties and responsibilities of regulating and coordinating its operation.
This Bill is the Senate’s second attempt at eroding the independence of the CBN. The first attempt was in 2012. The imagination of any third attempt should deeply scare every sane and patriotic Nigerian and every other stakeholder in the growth and prosperity of the country’s economy across the globe.
Considering the fact that tenacity in attempts often leads to success, any third attempt by the Federal Legislature (which could change approach to facilitate success) at the autonomy of the CBN could have catastrophic consequences on the country’s economy at a time, and in such manner, that the country may virtually have nothing to do about it in the foreseeable future.
The implications of this scary situation most-frighteningly include exposing the country’s economy to assaults by massive herds of political and business assailants who would feast on it due to the weakness of the institution that is statutorily mandated to insulate it from such assaults.
These facts will create a situation where the country will virtually lack an institution exercising the statutory powers to regulate and coordinate the growth of its economy to oil its existence and prosperity as an independent sovereign entity.
At the 27th September plenary, the Bill passed the second reading and was referred to the Senate Committee on Banking, Insurance and Other Financial Institutions for its input. The committee is expected to report back in four weeks.
The proposed amendments to CBN Act 2007, in respect of the three issues noted do not seem to take into consideration the sensitive and sacred duty of a central bank in the economy of any entity.
Amendments to any existing law with regard to an institution should aim at strengthening an institution’s capacity to execute its mandate rather than weakening the institution.
The proposed amendments would herald a part-time chairman and strip the board of its power to approve the bank’s annual budget. It would strip the CBN of its autonomy and, more scaringly, politicise its operations, creating a situation where political henchmen would scramble for the chairmanship of the CBN Board.
If this happens, the unpatriotic Nigerian politician as Chairman of the CBN Board, would certainly stop at nothing to wield his power to manipulate the Bank’s operations for his political interests and the interests of any invincible forces behind him. Exactly so will be the case if a business-inclined person assumes the Chairmanship of the CBN Board. He could wield his power for the same purposes.
The main issue in contention is the Chairman/Chief Executive Officer nomenclature in the governance structure of the CBN. It is the feature of most central banks across the globe. The maintenance of this nomenclature is aimed at insulating a central bank from undue pressures from both the political leadership and industrialists in order to preserve the institutional autonomy of the bank.
The CBN had, Since the enactment of CBN Act 24 1991, preserved its autonomy by battling political pressures plotting against it’s independence. Instances abound where the CBN fiercely fought such plots. When, for instance, CBN took control of five distressed state-owned banks in 1993, the governors of the owner-states jointly protested to the then President Ibrahim Babangida, seeking a reversal of CBN action. The then CBN Governor, late Alhaji Abdulkadir Ahmed, replied: “This is banking, not politics”. Consequently, CBN maintained its control of the distressed banks.
CBN fought another fierce battle to maintain its independence in 2001, when it introduced stricter guidelines for credit facilities to state governments. State governors, who saw the guidelines as impediments to fulfilling their campaign promises to their electorates, protested to the then President Olusegun Obasanjo. In the tug of war, CBN stuck to the guidelines; the governor’s succumbed.
The battle between central banks and the political leadership of countries over the independence of the banks with regard to operational guidelines is a global occurrence.
A noteworthy instance is when the immediate past President Donald Trump of the United States of America complained over the interest rate policy of the Federal Reserve Board, and attempted to force the Board reduce it, the Board stuck to the rates; and so they remained for the overall economic good of the world’s topmost economy.
A professional central bank committed to the prosperity of its country’s economy always resists attempts to tamper with its operations while pursuing its mandate.
Before the promulgation of CBN Act 24, 1991 and Banks and Other Financial Institutions Act (BOFIA) 25 1991, the CBN was under the supervisory purview of the Federal Ministry of Finance.
Instances abounded when the Ministry overruled the CBN’s professional positions. A noteworthy instance occurred in 1989, when the Nigerian Security Printing and Minting Company (NSPMC) applied for banking licence from the CBN. The CBN would not issue it the licence, citing the fact that it was inconsistent with NSPMC’s mandate.
The Ministry of Finance queried the CBN for rejecting the application. Instances also abounded when the CBN and the Ministry held conflicting positions over exchange rate and interest rate policies with Ministry’s position prevailing.
Although the CBN Act 24 and BOFIA 1991 had given CBN autonomy, subsequent implementation of the Act revealed certain inadequacies. For instance, under BOFIA 1991 CBN was enpowered to approve the issuance of banking licence but withdrawal of licence was subject to the approval of the Head of State (President). It was not until 1998/99 under General Abdusalami Abubakar’s regime that BOFIA was amended to confer the power to withdraw banking licence on the Board of CBN.
Also, the CBN Act 2007, strengthened the independence of the apex bank by addressing security of tenure of the Governor and the Bank’s ability to conduct monetary policy in pursuance of financial system’s stability.
Previous amendments to CBN enabling legislations, therefore, aimed at enhancing its independence and capacity to discharge its mandate rather than to weaken it as contemplated in the proposed amendments contained in the Bill currently before the Senate.
Without autonomy, CBN would not have been able to.carry out such major reform initiatives as adoption of universal banking (2000) bank consolidation (2004) and 2009 regulatory intervention could not have been possible.
The statutory roles and responsibilities of a central bank underscores the need for its independence.
Marc Quintyn and Michael Taylor in their article titled: “Should Financial Sector Regulators Be Independent?” posited: “making central banks independent frees them from political pressure and thus removes the inflationary bias that could otherwise unsettle monetary policy.”
They then identified four dimensions of independence namely: regulatory, supervisory, institutional and budgetary. While Regulatory Independence: relates to ability to set prudential rules and issue regulations to guide conduct of banking business, Supervisory Independence: entails close monitoring of operations of financial institutions and enforcing sanctions (including revoking licences).
The CBN currently exercises its regulatory and supervisory independence under the provisions of BOFIA, 2020. Institutional Independence entails security of tenure of executive management, governance structure composed of experts, freedom to conduct monetary policy as well as open and transparent decision-making process. Budgetary Independence involves insulating the Bank from political pressure and prompt response to imminent financial sector crisis but subject to clear accountability framework.
The CBN Act 2007 provides for institutional and budgetary independence which should not be tampered with. The budgetary independence is critical to any central bank’s ability to exercise the three other dimensions of its independence. Neither its lender of last resort role nor its financial system stability mandate can be effectively executed without budgetary independence.
Accordingly, the proposed amendments by the Senate are capable of eroding CBN independence. The Senate should appreciate the fact that the four dimensions of CBN’s independence are the global norm, and Nigeria should not be an exception.
The autonomy currently enjoyed by the CBN should not be tampered with in the interest of the country’s economy. The autonomy has prodigious benefits to the economy and the financial system of the country. The Senate should rather be concerned with the accountability of the bank. It should deploy its enormous oversight powers to ensure that the CBN is accountable in the exercise of its autonomy, due to the fact that independence without accountability is a recipe for disaster.
In circumstances of misconduct or dereliction of duty, the officials involved, not the Bank, should be sanctioned. The bank should not be the villain. It is the officials conducting the affairs of an institution that should be held accountable for their actions or inaction.
Bitter truth is that any attempt to erode the autonomy of the CBN would portend grave implications for Africa’s strongest economy.
Dambatta, a veteran journalist based in Kaduna, writes via [email protected]
