CBN: Time to defend the integrity of our institutions

History has taught us – and scholars are now documenting the lessons – that a great deal of the difference between developed/prosperous societies and those that are not are traceable to the presence and quality of institutions. For instance, Daron Acemoglu and James Robinson – in their highly acclaimed book “Why Nations Fail” conclusively show that the reason why some nations are rich and others poor, divided, as it were by wealth and poverty, health and sickness, food and famine, is as a result of the presence and quality of man-made institutions in the former and its absence or weakness in the latter. To drive home their point, they cited the example of Korea – a remarkably homogenous nation, yet the people of the South are among the richest while those of the North are among the poorest in the world. The contrasting fortunes of the two Koreas are in the nature and quality of their economic and political institutions. While those of the South are open, encouraging innovation and full participation in the economy coupled with a workable political system that is fully accountable and responsive to citizens, those of the North are closed, dependent on individuals and non accountable and responsive to citizens.

That is why countries that seek to build prosperous and sustainable societies anchor them on strong institutions rather than personal rule or strong men. Institutions are impersonal and enduring and not subject to the whims and caprices of leaders. They outlive individuals and guarantee progress regardless of the people inhabiting them at any point in time.

It is in this light that we view the constant interferences with the Central Bank of Nigeria (CBN) by politicians as dangerous and detrimental to the economy and the image of the country. Since the inception of the current democratic dispensation, but most especially, since the inception of the current administration, the CBN has lost its autonomy and does the bidding of rapacious and largely economic illiterate politicians who have no qualms collapsing the economy of the country to satisfy their selfish and group interests.

Published personal statements of Monetary Policy Committee (MPC) members from the July meeting shows a member raising serious concern on the illegal funding of the government by the CBN. For instance, between December 2013 and April 2017, CBN’s claim on the federal government (consisting of overdrafts, treasury bills, converted bonds and other such lending) rose from N678 billion to N6.5 trillion. Sadly, the claims rose highest between December last year and June this year. In simple English, the CBN has been printing money to fund government’s spending. What is more, to control the consequent inflation, the CBN raised the cash reserve ratio (CRR) – effectively reducing the money in circulation and crowding out the private sector in favour of the government. Another implication of this wanton and illegal borrowing to the government is that while officially, the government supports a liberal market economy, in reality, it acts in ways that imperils the private sector and to strengthen the role of government in the economy.

Regardless, we need to restate that it is the duty of the Central Bank governor to guard the independence of the Bank and insulate it from political interference regarding monetary policy –exchange rate; inflation rate and interest rate. Investors and the market generally frown upon political interferences with monetary policy decisions and a critical component of the job of the head of a central bank is to take active steps to defend the independence and integrity of the central bank in monetary policy matters.

The governor of the bank must realize that he has a sacred duty to defend the integrity of such a critical national institution and history will judge him harshly if he fails to or is even seen to be actively collaborating with those who seek to illegally hijack the CBN to advance their political interests while jeopardizing the collective economic wellbeing of the nation.

We are not unaware of the enormous coercive and manipulative powers of the Nigerian presidency. But that is no excuse to lamely surrender such a critical national institution to politicians who have no idea how to determine monetary policy or how a Central Bank should function. If the pressure is too much on him, he can do the next honourable thing as is done in saner climes – resign.