The havoc the 2008 financial crisis brought to Nigeria would have been minimal, had it not been that the breakdown in CBN’s oversight and surveillance system allowed the country’s banks to engage in Ponzi scheme banks; had it been that the CBN ran as if an academic institution, with idealized neoclassical monetary policy, allowed banks to freely cook their books! Would the banks have swindled millions of Nigerians over N2.5 trillion hard-earned savings and assets, had it not been that their Fitch bloated ratings were used to entice unsuspecting investors to margin loans? But committing the worst banking fraud ever in Nigeria’s banking history were bank chiefs, who, using Special Purpose Vehicles (SPVs) easily diverted hundreds of billions of naira of investors’ money, who, having unknowingly left the safety of bank Certificate of Deposits (CD) to take advantage of invest in money-doubling banks, failed to recognize they being lured into stepping in front of a high-speed train.
Having been true eyewitnesses to some of these mindboggling frauds uncovered in our banking industry under CBN’s watch, and seeing the same central bank still operates in full secrecy like a secret organization, millions of Nigerians now protest that some drastic curtailment of the powers the CBN be conducted. Besides the recklessness of the governor both in his public utterances and his free-lunch paddling, that the bank has also immersed itself into fiscal policy and foreign policy activism, ended up making Nigerians believe that they have had enough of a directionless apex bank. And agreeing that it’s truly the right time to tackle the rot head-on, our dynamic, no nonsense House of Representatives, has since taken it upon itself to roll back some provisions of the 2007 CBN Act that have been causing the bank to act like a sovereign entity.
Having become wiser, Nigerians are demanding that such amendment should come with full-blown transparency and accountability so that the bank is guided by Nigeria’s economic mood. In other words, Nigerians have made it clear to their lawmakers that anything short of proper oversight of the bank should be unacceptable. Little wonder, it’s not just about bringing full light to the opaque institution, but also bringing irreversible democracy to this uncomfortable absurdity at the very heart of our representative democracy.
Removing these unconstitutional and undemocratic powers handed to the apex bank in 2007 in the name of so-called international best practices, especially to ensure that it’s fully focused on the country’s economic realities in ways that create better economic environment, has led to proposing amending CBN’s board composition, budget preparation, budget approval, and salary. Because of doubts about minimal conflict of interest and accountability in the 2007 Act, given the flawed corporate governance structure which makes the CBN management its own watchdog, the proposed amendment intends to reduce the 12-man board, which has the governor as chairman to a 7-man board, without the governor as chairman and with only him from the management team as member. To fully enshrine good governance, it is better to increase the 7-man board to a 9- man board with four CBN and five non-CBN members.
Rightly to be replaced is the provision which empowers the board to approve the bank’s annual budget with a new provision which mandates the board to submit the bank’s budget to the National Assembly through the President. This is the most important amendment here because it eventually allows Nigerians to know how much the CBN spends annually. With this, the CBN of course, ceases to be a sovereign entity, an institution that is above the laws of the land. But why should an institution with such a monopoly on the creation of money want to operate above the law? If all other government agencies have their operating expenses approved by the lawmakers, what is the rationale for CBN’s exclusion? Or should CBN have to operate in full opacity in order to be able to perform its duties? If it is truly in public interest it operates, how come it’s not allowing Nigerians the right to know how their interest is being pursued and protected? That is why rather than criticizing the proposed amendment we should praise the House for bringing transparency and accountability to the CBN by rolling back power enjoyed by its unelected board, particularly the power to approve CBN’s budget without appropriation. That the amendment is long overdue could be seen in how the 2007 CBN Act is in full conflicting with the Fiscal Responsibility Act.
On the proposed removal of the banking supervision from the CBN, given how much the CBN has invested in its banking supervisory department both in training its current staff and in equipping the department, my take on this is to spinoff the department and model after AMCON. I say this with the understanding that fully removing banking supervision from CBN will complicate the coordination of monetary policy since the control of system liquidity is domiciled in the bank.
To appreciate how what the House is doing is good for our country, we better examine how US Congress’s ongoing right-sizing that country’s central bank, Federal Reserve System. In an effort to introduce far-reaching transparency and accountability into the Fed, Congress has since rolled out draconian legislation, aimed at curtailing the powers of the Fed. One of such far-reaching measures is the introduction of the American Monetary Act, designed to resolve the ambiguity over who controls the Fed. Another is the Federal Reserve Transparency Act, designed to pull back the curtain from a secretive and unaccountable Federal Reserve. But there’s no important legislation as the Bill HR 1207 before the House of Representative, which if passed will bring full transparency and accountability to the system’s Federal Open Market Committee (FOMC). This it will do by mandating that the day after each FOMC meeting, Congress should send in the GAO (Government Accountability Office), an investigative arm of US Congress charged with examining matters relating to the receipt and payment of public funds should demand, and audit everything said and done during the meeting.
While the conventional excuse is that this is intended to reduce CBN’s susceptibility to political pressures, the US example proves that wrong. But let us also agree that there is no way an institution serving as the very lifeblood of a country should claim to be politically neutral. Or how should a bank its monetary policy causes an economy to grow, stagnate, or plummet, and should it so negatively affect the people, could stir social uprising, claim to politically unbiased? Isn’t it a baloney to argue that an institution with the bank’s kind of enormous political and economic influence, including doing what pleases president is politically inactive?
The argument that because political cycles are considerably shorter and that such political cycle could subject the CBN to political pressures, which could trigger an inflationary bias to monetary policy is another bunkum paraded by western-interest pushers. Truly, politicians in a democratic society are short-sighted because they are driven by the need to win their next election. But, then, are politicians not going to elections with their performance score cards to the electorate? If the monetary policy of the CBN is going to improve their chances at the polls, why should the politicians not support the CBN monetary policy? The truth is that since it’s the politician that hired CBN managers, it should be the politician the managers are answerable to. This is because the people that elected the politician are the ones the politician faces when the economy fails. So, the politician is held responsible for all economic mistakes, including the ones made by those running the country’s monetary policy. That is why living in the real world, the politician is skeptical about the so-called long-term monetary policy of the bank, especially when it’s n
ot grounded on facts.
Giving how the full independence of the CBN has indirectly handed our monetary policy to powerful imperialist multilateral financial institutions like the Bank for International Settlement (BIS), including the enormous power it handed its committees: the Basel Committee on Banking Supervision, which has been working on how to regulate not only international banks of the world, but eventually every national bank as well; the Committee on the Global Financial System, which monitors financial markets around the world with the objective of identifying potential risks for financial stability; and the Committee on Payment and Settlement System, which looks to strengthen the infrastructure of financial markets with regards to rules on how to transfer monies and how to make payments between member banks, one wonders if making foreign policy still makes the CBN politically neutral! But why should a government agency, be allowed to enter into agreements with foreign powers, with multilateral financial institutions and with many central banks around the world, involving billions of dollars in currency swaps, and still expects no legislative oversight?
Or was it not CBN’s unshielded membership in BIS that led BIS to force Nigeria into undertaking ill-conducted banking consolidation in 2005 and 2006, which based on BIS’s imperialist Basel II, triggered the floodgate of corner-cutting in the banking industry, and which ended up plunging the country into its worst banking and financial crisis ever? Or wasn’t it the rush to meet N25 billion recapitalization within such a short period of time that forced our banks to sell off their financial souls to some invisible western financial imperialists? Are we still unaware that it’s because our banks are held in their life-support machine that these invisible foreign hands have continued to dictate our banks lending policies and business models that discriminate against investing in our economy’s real sector, by lending only to government and importers of foreign made goods?
If we understand why those who run BIS and IMF have been aggressively pushing for our further exposure to the western-controlled borderless financial world, we will have no difficulty understanding equally why the IMF country representative, Mr. Scott W. Rogers, is fighting for full independence of the CBN. It’s for these reasons that our lawmakers should also think of subjecting CBN’s foreign agreements to full legislative oversight.