The debate about restructuring the Central Bank of Nigeria’s corporate governance system is rumbling through the National Assembly again with vigour. The CBN Governor, Sanusi Lamido, has responded in his characteristic pugnacious fashion; leaping to the defence of the bank’s status quo. Several others have joined him in castigating and publicly berating lawmakers for attempting to ‘emasculate’ the Central Bank by stripping it of its autonomy. Let’s face it, Sanusi has a track record of lambasting the lawmakers on this vexed issue (see my previous comment: “CBN governor’s corporate governance dilemma”, The PUNCH, June 15, 2012). His sometimes brash and belligerent pronouncements on this and similar issues can only be countenanced by someone secured in the knowledge that he has behind him the full backing of the President of the Federal Republic of Nigeria. This, in turn, has made elements within the legislature even more determined to ‘clip the wings’ of the bank as it were. Murmurings among lawmakers have even gone to the point where some are now openly contemplating the previously unthinkable: subject the apex bank to direct parliamentary control. These two polarising views, I submit, are hard-headed and wrong in equal measure.
Autonomy and accountability (what the debate is really about), are not mutually exclusive objectives; they reinforce each other. Neither is desirable without the other. No Central Bank in the world (even in a theocracy) exists as an island entirely unto itself. This is even less so in a democratic society where accountability flows from the very autonomous status of the bank itself. Accountability is not an extraneous fad; it is an integral part of being an independent entity. Consequently, talk of autonomy versus ‘interference’ in relation to the CBN is nothing but froth; it is a false dichotomy. Nonetheless, there is a fundamental reason why the notion of an independent Central Bank as applied in advanced economies remains problematic for us in Africa in a general sense. The aim of this piece, therefore, is to elucidate the core dilemma of the ideal and idea of the governor of an independent Central Bank in a country still in transition like Nigeria. First, let us look at the modality of an independent Central Bank governor from the standpoint of the three most important ones in the world namely; Bank of England, Bundesbank (Germany) and the Federal Reserve in the USA. This is not to say that other countries such as Japan, China and France matter less, even the Swedish Central Bank, the Riksbank, the first central bank in the world (established in 1668), also matter, but the suggestion here is based on the empirical evidence of their significance in global finance.
The Bank of England (functioning since 1694), sits at the centre of the financial capital of the world: London. It had cause to reset its corporate governance structure in the 1998 Bank of England Act, and the Banking Act 2009, in the wake of the global financial crisis. The bank is run by a non-executive Board of Directors of nine, which determines its objectives and strategy. The Minister of Finance then designates one of the board members as Chair (democratic input). The governor is appointed by the head of state (the Queen on the recommendation of the Prime Minister) for a period of five years and the directors for three years. Day-to-day management of the bank is delegated to the governor, but the board reserves the right to agree on major decisions. The main duty of the governor is to set interest rates and keep a tab on the country’s monetary policy. The Deutsche Bundesbank, in its modern framework, was re-established in 1957. Germany, being the biggest and leading economy in the EU, decided to integrate itself into the European Central Bank framework in 1999. The governor of the Bundesbank also sits on the board of the ECB. The Bundesbank is run by an executive of six members, half of which are nominated by the Federal Government, and the other half by the Bundesrat (the Upper House in Parliament) (democratic input). The appointment of all six is then rubber-stamped by the country’s ceremonial Head of State. In addition, the bank has nine regional offices and 47 branches throughout Germany (diffusion of power). Finally, the all too important Federal Reserve (functioning since 1913), has the widest reach of all for obvious reasons; convertibility of the US dollars, and it is the heartbeat of global capitalism. Far from being a rampaging beast making pronouncements on issues inside and outside its remit, its activities are subject to tight Congressional oversight. It is mandated to work within the overall economic framework set up by the government. The Federal Reserve operates within a sophisticated ‘federal’ structure. It has a Board of Governors based in the capital, Washington. It has seven members, appointed by the President of the United States with the approval of the Senate. It also shares its powers with twelve regional Federal Reserve Banks throughout the USA. Members of the Board of Governors are in continual engagement with policymakers in Congress. The Chairman of the Board holds regular contact with the President’s Council of Economic advisers (political appointees), as well as the Secretary of the Treasury (also a political appointee). Democratic and political oversight of the Federal Reserve in the US is taken as a given. So, what does all this point to for us in Nigeria?
First, these major banks (the world’s rulers in finance) are wont to pushing a romanticised ideal of an independent Central Bank to the rest of us in the developing countries, not minding the fact that even they, who have been in the business for hundreds of years in some cases, still would not let their own central banks roam loose in the middle of nowhere in their supposedly ‘free market’ economies. Furthermore, because of practice and maturity of their political system, they have carefully placed a number of (political) checks and balances in the way of any would-be rampant governor, who might be tempted to overstep the boundary. It stands to reason, therefore, that where sophisticated checks and balances work, there is no need for ‘interference’ from politicians. ‘Independence’, therefore, becomes an absence of direct instructions from politicians; it does not mean independence from the existing political framework. I think this is the point Sanusi is missing in his assertions and ‘battles’ with the National Assembly. It is equally the point that has not been sufficiently articulated by the politicians either. I have often been fascinated by the number of awards thrown (almost by tradition) at successive governors of the CBN. As it happens, an award goes to an incumbent governor for being the “international governor of the year”, he then leaves office, a successor comes in and dismantles everything the previous one did, then, he too gets recognised for rubbishing the work of his predecessor!
We hear constant reference to the need for the CBN to be autonomous in line with “international standards”, but what are the ultimate aims of these so-called “international standards”? Well, Sanusi, it is to make our economy free for exploitation (aka ‘foreign direct investment’) by international capital. All of us on the African continent are equally vulnerable to predatory capitalism of the kind being shoved down the throat of our policymakers in today’s integrated world of finance. Nonetheless, given that our economies have been so tightly absorbed into the global finance and free market liberalism, it would be churlish of anyone to advocate government ‘interference’ in the monetary efforts of our central banks, but I am convinced that the Governor of any Central Bank in Africa, with untrammelled power to do and undo, is a dangerous one.
Tayo Oke (tayooke@okeassociates.com)
