Ever since man’s invention of money as his main means of exchange, unfortunately, money has become so powerful that it has become the root of all evils in the society.
Little wonder, Mayer Amschel Rothschild was quoted as saying “Permit me to issue and control the money of a nation, and I care not who makes its laws… [Because] I control the British money supply [so I] control the British Empire.”
That is why there is no way we should be talking about advancing the development of Nigeria’s economy, while allowing our monetary policy in the hands of those who are not far from seasoned economic saboteurs.
For China’s GDP to be growing more than 7.5 per cent annually with 12.5 million jobs created annually too during the past three and half decades, the People’s Bank of China has always pursued a pro-investment, pro-growth and pro-jobs monetary policy.
But in the endless pursuit of this overall national prosperity and job growth, China’s socialist market economy as an organic communitarian system is driven by Chinese monetary policymaker always working hand-in-hand with China’s fiscal policymakers.
Therefore, while fiscal policymakers constantly stimulate economic growth by massively investing in infrastructure expansion and upgrade in ways that lower the cost of doing business in China, maximizing this pursuit of rapid economic growth, the People’s Bank of China, on its part floods the system with cheap liquidity, which the banks in turn make cheaply available to the country’s real sector economy — manufacturers and other goods and service providers.
But, of course, this flood of the system with liquidity, using Quantitative Easing (QE) remains an American invention. Flooding America’s illiquid economy with excess liquidity at the heat of the Great Depression in 1933, Mariner Eccles, as the Fed Chairman, was able to use QE to surprisingly end the country’s intractable economic crisis.
But it’s Lincoln administration that first experimented with QE during the American Civil War 1861 – 1865. Being unable to meet the intractable war cost, Abraham Lincoln in 1863 instructed his treasury secretary Salmon Chase to print enough greenbacks — $431 million — to finance the civil war. The ‘funny money’ as it’s nicknamed because for the first time dollar was issued by fiat without gold backup, not only financed the rebuilding of the war-torn economy but also financed US industrialization without recourse to borrowing or accumulation of debts from European bankers.
By pumping $4tn new dollars between 2009 and 2013 into the illiquid US economy, this QE became Federal Reserve’s (US’s apex bank) magic wand to restore liquidity to the US cash trapped economy caused in 2008 by the Wall Street-induced global financial crisis.
And with this QE monetary policy, the US economy quickly picked steam, generating during the same period an unheard-of 8.7 million manufacturing jobs, not to mention tens of millions of service and high-tech new jobs.
Because by using QE the once uncompetitive US real sector has since been fiercely competing favourably with its Chinese counterpart, little wonder China and the US are fighting currency devaluation war.
And with the Eurozone economy abandoning its crippling economic stagnation caused by its blind pursuit of liquidity tightening and fiscal austerity, by joining in 2013 this race to QE — a singular decision that has made the Eurozone economy pick up — the currency war has since become messier.
But, why is it that while the rest of the world is using QE to give their economies a new breath of life, those in charge of our monetary policy are blindly liquidity tightening which rather than promote economic growth and diversification is promoting stagnation and import dependency?
Doing so is purely because those in charge of our monetary policymaking rather than conducting their policy for the overall growth and diversification of the economy always pursue liquidity tightening simply so that the commercial banks where most of these monetary policymakers directly came from are able to impose cutthroat interest rates on the economy with the real sector players worse hit.
Unable to access cheap loans, our real sector players rather than engage in making locally most of our imported goods, they’ve no option but to join the race to import cheap and low quality Chinese goods.
This import dependency has resulted in exporting millions of manufacturing and agricultural jobs annually along with the constant pressure on our scarce foreign exchange supposed for economic industrialization and diversification.
So, asking why all we’ve been seeing all these years in Nigeria is narrow and disjointed monetary policy is to ask for how long should we go on this path before the government reforms the CBN, especially with our monetary policymaking increasingly in the hands of a bunch of corrupt pretenders whose only reason leading the CBN is to rob and milk the nation for themselves and their banks.
Because the banking and financial sector remains the very foundation upon which every modern industrial economy is built and advanced, to ensure that Nigeria’s industrialization and economic diversification don’t continue to be postponed, Buhari administration should embark on banking and financial sector reform, starting with overhauling the CBN. In doing so, the ultimate goal should be a truly pro-investment, pro-growth and pro-jobs monetary policymaking CBN.
Presidential Committee on Banking Reform
This will require setting up a ‘Presidential Committee on Banking Reform,’ with the mandate of coming up with such a sweeping reform in repositioning the banking and financial sector to patriotically deploy the right monetary policy tools to push for the economy’s rapid industrialization and diversification.
But to truly get to the bottom of it all, the committee’s mandate should include the thorough investigation of the endless crisis rocking the sector all these years. For this reason, emphasis should be from May 29, 1999to May 29, 2015.
Since the ultimate goal is repositioning the sector in a way that fast-tracks the country’s industrialization and job creation, without finding out what really went wrong and the culprits, the committee’s recommendations may not be truly based on realistic and lasting foundation.
Democratizing CBN Now
The democratization of the CBN is another important assignment for the committee. But to operate under both executive and legislative supervisions, the curtailment of the apex bank’s independence becomes unavoidable.
In other words, just as it is the case in the US, China and other modern economies, the CBN’s critical monetary policymaking — exchange rates, interest rates, inflation rates, and forex management — should be made subject to executive approval along with legislative authorization.
Making it to operate within the confines of the law makes its monopoly on the creation of money to take place also within the confines of the law. And just like other government agencies have their operating expenses appropriated by our lawmakers, the expenditure of the CBN too should be within appropriation.
And to ensure that both monetary policy and fiscal policy are always made in full pursuit of the overall economic development and job creation, like it is the case in China, the new CBN should insist on the need for a continuous synergy between both economic policymakers.
Such a transparent and accountable CBN will require also the overhauling of its present governance arrangement, which makes the governor head both the management team and the board of directors — the watchdog. Removing the governor from being the CBN board chairman will bring the badly needed checks and balances on the way the apex bank is run, especially with the majority of the board members coming outside the CBN.
Minimizing revolving door and conflict of interest practices responsible for the present pursuit of monetary policy favourable only to the banks at the expense of the larger economy will require inclusion in the amended CBN Act a section that insists that both governor and his deputies should no longer come straight from the commercial bank. A minimum of ten years after leaving the commercial bank is required along with an undertaking not to take up any form of job in the banking industry, including board membership, until after five years of leaving the CBN as a governor or as a deputy governor.
In the so-called advanced democracies whose insistence led to the CBN Act of 2007 giving the present independence of our central bank, right measures are in place to curtail the anti-democratic excesses of their central banks. The introduction of far-reaching transparency and accountability measures into the US Federal Reserve System is an interesting story for us.
And to democratize the Fed as a transparent and accountable apex bank, led to the introduction of the far-reaching Federal Reserve Transparency Act by Congress. For every Federal Open Market Committee meeting of the Fed, Congress by law sends the Government Accountability Office, its investigative arm charged with auditing, everything said and done during the meeting.
Power to Hire and Fire
Since the president is the chief executive officer of the economy, being wholly held responsible for whatever happens to the nation’s economy, the amended CBN Act should restore to the president the power to remove at will the governor or deputy governor without seeking any form of senate approval. In other words, while the president requires senate approval for the appointment of the governor or deputy governor, sacking any of them, he will require no such approval.
This way, these unelected technocrats should conduct monetary policy bearing in mind that they are working at the pleasure of the president who hired them with the hope that their activities at the apex bank are in line with his overall economic agenda and the promises made to the electorate, who he should present his performance score cards from time to time, particularly during his re-election.
Making Foreign Policy
Worrisome is not that the CBN conducts policy foreign in its dealings with foreign central banks, Bank for International Settlement (BIS) and multilateral financial institutions such as the IMF and the World Bank, but more worrisome is that the CBN does so unconstitutionally and with impunity especially hardly with legislative authorization.
But how on earth should a group of unelected technocrats who in most cases are using the apex bank as an instrument of furthering their narrow interests and those who lobbied for them to be there, including foreign governments and private institutions be allowed to conduct such far-reaching foreign policy on behalf of the country as they like?
Withdrawing this power of foreign policymaking is an important amendment needed in an effort to fully right-size CBN and curtail its overbearing undemocratic supremacy. With this, all foreign policy lawmaking, including foreign financial agreements, is once again restored to the country’s apex legislature.
Using Forex Policy to Block Imports
Using forex policy as a tool to discourage importation of what can be made locally, rather than selectively listing goods and services that shouldn’t qualify to access forex from official windows, the CBN should have come up with the list of the few items to qualify to access forex officially. Such items should be industrial machinery, plant and equipment that should drive the country’s industrialization.
This way, while allowing other importers to source their forex unofficially, the insistence should be that the proof of the legitimacy of such sources is subject to CBN’s acceptance or else they are declared money laundering. With the use of money laundering to frustrate imports of what could be easily made in Nigeria, the government should no longer worry about how World Trade Organization’s free trade agreements have continued to displace and discourage the making of these goods and services locally. This is especially if also some invisible tariffs and non-tariff measures are brought too.
Denying Medical Tourists Forex
Unbelievably, after having diverted the country’s money meant for developing essential social infrastructure such as schools and hospitals, Nigeria’s elite crooks now want the CBN to allow them access scarce forex for their overseas medical tourism and for their children’s overseas education.
This time around they should not be allowed official access to our scarce forex. Either they too are treated at our hospitals and their children attend local schools, or they source such forex needs from the unofficial windows.
But to make the unofficial windows difficult for them, domiciliary accounts should be declared illegal and shutdown. This will truly bring speculation and dollarization to their knees. Closures of domiciliary accounts and freeing billions of idle dollars lying in these domiciliary accounts across the nation too will lead to naira’s appreciation in value.
In addition to this, naira denominated accounts should no longer be used in accessing forex overseas no matter the amount. This invalidates the current disjointed CBN forex policy which allows the use of naira ATM cards to withdraw up to $300 daily and $50,000 annually. We should do so especially because this unpatriotic and pro-elite policy never takes into account how it could become speculators’ newfound loopholes to drain our hard earned forex. Ensuring no leakages in the system, transactions conducted in Nigeria including e-commerce and international air tickets should be naira based.
With all these loopholes sealed, and with only listed essential imports to access forex through the official windows, naira should be allowed to seek its true market value. Even if that means N500 to $1 at unofficial windows, so be it; especially since the CBN only supplies forex to the listed items at the low rates suggested by the president and approved by the apex bank.
The good news is that with most imported items gradually made in Nigeria because their foreign producers are forced to relocate their factories to Nigeria in an effort to take advantage of the country’s huge consumer market, overtime that means less import pressures on the country’s foreign exchange. And less import pressure also means naira’s appreciation, regaining its lost value against major currencies. But that’s only if our foreign exchange policymakers in an effort to keep imports expensive do not continuously keep the naira artificially undervalued.
Spin off NBRC from CBN
As at today, there is no advanced economy that has allowed its central bank to perform both monetary policy and banking regulatory and supervisory functions together. For those advanced countries that never spun off their banking regulation and supervision from their central banks, the global financial meltdown in 2008 confirmed how ill-equipped and compromising central banks are in performing banking regulatory and supervisory functions along with monetary policymaking.
Doing what their peer governments did long before 2008, governments like the UK in 2013 created the Prudential Regulatory Authority (PRA), charged with regulating and supervising banks. Even in response to the 1997 Asian tiger economies’ financial crisis spun off China Banking Regulatory Commission from the People’s Bank of China (China’s apex bank) in 2003.
So foresighted were those who established America’s apex bank — the Federal Reserve System (the Fed) — in 1913 that the Fed, located in Washington is purely responsible for monetary policymaking, while the 12 Federal Reserve Banks — located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco — are each responsible for regulating and supervising banks in their respective district.
That we are yet to spin off banking regulation and supervision from the CBN explains why we are helplessly watching banks endlessly expose depositors’ and shareholders’ trillions of naira to their unprofessional and sharp practices, made possible because the apex bank as an ally has always allowed them to get away with their frauds.
Since reducing fraudulent practices in the banks has become important if we have to defeat corruption in the country, the president should spin off banking regulation and supervision from the CBN by establishing the Nigerian Banking Regulatory Commission (NBRC). With the CBN formulating only monetary policy such as determining the inflation rates, interest rates, and exchange rates, besides formulating prudential rules and regulations, NBRC should also be responsible for approving new banking institutions, and delisting those banks that should be put out of business.
Employing the needed stringent supervisory measures, NBRC should be in such a better position to evaluate and ascertain banks’ capital and risk levels, their credit concentration risk and liquidity risk. Also reputational and corporate governance non-credit risks along with system control risks are constantly watched. Robust off-site and on-site investigations will put NBRC in a better position to easily predict bank risks and be able to sound an early-warning alarm.
Enwegbara is a development economist.