For the third time in less than one year, there has been bills by the National Assembly, seeking to amend some provisions of the Central Bank of Nigeria (CBN) Act. The most recent bill, being sponsored by Mr. Adams Jagaba (PDP Kaduna), entitled: “An Act to amend the CBN Act No. 7 of 2007,” to appoint a person, other than the apex bank governor, as chairman of the board of the bank, excluding Deputy Governors and Directors as members of the board, divest the board of the power of consideration and approval of the annual budget of the bank.
Indeed, the move by the lawmakers has continued to generate a lot of reactions, as experts have argued against tampering with the autonomy of the Central Bank, which they contend portends danger for the economy. Even though most people agree that it is not ideal to grant untrammeled freedom to any institution, they stressed the need for the lawmakers to continue to carry out their oversight functions. According to them, any form of amendment to the CBN Act, with a view to removing its autonomy and subjecting it to political interference, will be inimical to the economy.
Some economists and investment experts have continued to express worries over the proposed plan, urging the National Assembly to halt the move. Managing Director/Chief Executive Officer, Maxifund Investments and Securities Limited, Okechukwu Unegbu, advised members of the National Assembly not to remove the CBN’s autonomy. Unegbu, a former Chief Executive Officer of defunct Citizen International Bank, warned that amending the CBN Act would distort the system.
He said: “why is the National Assembly trying to amend the CBN Act? The reason and only reason is because there is one strong character that had taken them on. We should be thinking of building strong institutions, so that anybody who gets there, whether the person is weak or strong, will continue to evolve in the system. We wrote a memo to the National Assembly, telling them that it is not right to do that. We fought for the financial and instrument autonomy of the CBN and so people cannot just destroy it.
They are doing that because they have seen Lamido Sanusi as being too vocal and too strong to contend with them, therefore they want to cut his power, not thinking of the danger it will cause to the financial system. In going after Sanusi, they are trying to destroy the central bank, which should not happen,” he said. “It means that financial regulations have to be reviewed. In other words, regulators in the financial system have to rethink about themselves. The financial regulation coordinating committee should always be thinking about cooperation.
The capital market was very strong before prior to 2008 and they were doing things as if they existed alone in a system where there are so many other contending financial institutions or financial markets. As at that time, everybody was making money and forgot that in making money there is what we call financial friction, and this is what happens between the banking sector and the capital market. “Now, while the banking system has a lot of investible instruments, the capital market has few instruments. We only know about shares and stocks. This is because of the imperfect information in our system.
Both the banking system and capital market lack information and this makes it impossible for banks to lend,” he added. Also, Professor Wumi Iledare, a political economist and Director, Center for Energy Studies, Louisiana State University described the plan as absurd.
“The autonomy of the Central Bank is so central in my opinion to the type of sustainable growth we envisaged. We have four important markets in any viable economy-the resource market, the financial or money market, and the labor market. Looking at Nigeria, government basically controls all the other market except the financial market and the latter is the only market with sanity thus far.
Putting CBN under the control of politicians will lead to disaster as evident in the labor market,” he said Iledare said if the National Assembly succeeded in their plan, the impacts would be reflected on the nation’s economy.
“Inflation will go up, unemployment will go up and interest rate will go up and the economy will slump. Right now, Nigeria is among the bottom 20 economies in the world. Our aspiration to be among the 20 will forever be elusive if we take away the autonomy of the CBN. “In fact, I think Nigeria needs an autonomous institution to control the resource market as well,” he advised.
Some of the prominent Nigerians at a recent parley organized by the House Committee on banks and currency on the planned amendment of the Act, CBN and other stakeholders cautioned that the move was a wrong one and should be discontinued. CBN Governor, Mallam Sanusi Lamido Sanusi, represented by Mr Tunde Lemo, deputy governor in charge of Banking Operations, said it was wrong for the House to move to whittle down the powers of the apex bank. He warned against the amendment of the CBN Act if carried out would hurt the operation of the bank and by extension the economy.
He said: “An efficient CBN is one that is truly independent.” The CBN governor called the attention of the lawmakers to what he said was the practice in more than 40 countries, insisting that the chief executive of Central Bank was the chairman of the board in those countries.
He advised that rather than amend the Act, the National Assembly should step up oversight of the bank using the current Act. To do that, Sanusi recommended that the National Assembly should demand that it be briefed quarterly by the governor.
Emphasising the dangers of amending the current Act he argued that, apart from the move the hurting the operation of the bank, the reputation of the apex bank would be at stake as a lender of last resort. He maintained that the confidence of Nigerian banks would be eroded before the international community. The CBN boss stressed that taking away the financial autonomy of the bank would limit its ability to fulfill its lender- of – last resort function of providing loans to distressed banks.
This he cautioned would in effect constrained the ability of the bank to achieve its mandate of ensuring financial system stability.
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