A disproportionately large part of the National Assembly’s resources was taken up last year with members attempts at altering the Central Bank of Nigeria (CBN) Act 2007. As befits a pillar of our struggling democracy, parliament couched its efforts down this path in terms of the need to increase the apex bank’s accountability to the polity. Yet, suspicion mounted that at heart, these were but idiosyncratic legislation addressed to the person of the current governor of the CBN. Once you considered that a great many of the additions too, and excisions from the present act proposed by the National Assembly blurred the Chinese wall between the fiscal and monetary spaces, which both the literature and experience has shown is necessary for independent monetary policy making, then the systemic benefits of the former fell flat on their faces.
Governments tax and spend. That is what they do. Increasingly, it matters less how they tax. Truly, in our own example, they have since stopped bothering about improving the efficiency of tax administration. There is enough crude oil earnings to go round. Well, even this revenue source is scarcely managed with much political or economic nous. The decisive consideration for economic development is how monies available to government is spent. In our case, most shamefully. Unfortunately, representative democracy, with its focus on regular elections, and its four-year cycles, imposes a short-term horizon on elected governments. The less mature the polity, the likelier it is that spending is skewed away from the drudge of building long-term domestic capacity towards pork barrel vote getters.
How best to hold down this pro-cyclical spend? Essentially, take the supply of money away from government’s control. This is equally about taking the printing presses away, as it is about an authority, independent of the fiscal side of government, being able to target levels of inflation consistent with the growth needs of the economy, by addressing itself to interest rates, and bank balances. The volatility in prices that ordinarily attends the exercise of fiscal policy is deleterious to economic growth.
Recognising this need, one took the National Assembly’s rule-making foray with the necessary dollop of salt. Only to read in the papers, this year, that honourable members are minded to hive-off the banking supervision arm of the CBN from its monetary policy function. About 13 years ago, when the government in the United Kingdom enacted the Financial Services and Markets Act, which set up the Financial Services Authority, there was merit to this argument. Then, it was held that the diurnal task of poring through banks’ books was a de traction from central banks’ more important monetary policy work. So, in some jurisdictions, notably the UK, this separation took place.
However, if any lesson was learned from the 2007/2008 global economic and financial crisis, it is that the if central banks are to have a decent chance of maintaining financial stability, they need to have a clear handle on the monetary policy transmission chain. Responding to this new understanding, Her Majesty’s Treasury is proposing a new system for managing financial stability in the UK that “will give the Bank of England macro-prudential responsibility for oversight of the financial system and, through a new, operationally independent subsidiary, for day-to-day prudential supervision of financial services firms managing significant balance-sheet risk. The FSA will cease to exist in its current form. A proactive new conduct of business regulator will also be created to protect consumers, promote competition and ensure integrity in markets”.
Not only are we bucking a trend, though, we are reinventing the wheel. Again, not really a re-invention, for square wheels have been tried before. They just did not work very well. And it is a fair bet that transferring the CBN’s banking supervision work to the Chartered Institute of Bankers (CIBN), as several newspapers have reported the National Assembly as being minded to, will be a disaster for the nation’s financial system. To contemplate the transfer (to a guild that until now has been responsible for certifying its members and catering to their welfare) of a function that is today, globally recognised as very important for economy’s financial stability is shocking at best.
At worst? Now these are honourable members!