THE CBN AMENDMENT PROPOSAL  

The independence of the central bank is vital for economic growth and stability

Two amendment bills recently scaled second reading at the Senate. The first bill, titled ‘A Bill for an Act to amend the Central Bank of Nigeria Act and for Other Related Matters’, is being sponsored by Senator Darlington Nwokocha while the second, ‘A Bill for an Act to amend the Central Bank (Establishment) Act 2007’, is sponsored by Senator Sunday Karimi. The key amendments that the two bills, which have been consolidated by the Senate, are proposing include prohibiting the use of foreign currency in local transactions in Nigeria, ban on partisan politics for CBN governor and deputies, reconstitution of the board of CBN, subject remuneration of CBN staff salaries to the Salaries and Wages Commission and cede the position of board chairman to an external person.  

The overriding aim of the two bills, according to the promoters is to enhance the transparency and efficiency of the Central Bank of Nigeria (CBN) operations and whittle the powers of its governor. The Senate Committee on Banking and Finance is expected to report back to plenary tomorrow on the bill and we hope that they will be mindful of the importance of the apex bank. Whatever may have been the misgivings against the involvement of the former CBN Governor, Godwin Emefiele, in partisan politics, that should not be an excuse to rewrite the law to cripple the most critical financial institution in the country. While banning CBN governor and deputies from partisan politics is proper, the idea of imposing on the board a chairman from outside is not necessary.  

The Maastricht Treaty of 1992, which enshrines the independent status of the European Central Bank (ECB) and the EU national central banks has in many countries become the preferred means of providing an institutional framework for monetary policy. The current president of ECB is the chairman of the board of the bank owned by the 27- member central banks of the EU. The United States Federal Reserve (Fed), the equivalent of our own CBN, is independent and its chairman also chairs a seven-member board.    

Former Managing Director/CEO of the Nigeria Deposit Insurance Corporation (NDIC), Ganiyu Ogunleye, who had also previously held the position of CBN Director of Banking Supervision, once argued that the National Assembly should not use their power to make or amend laws to weaken critical institutions. “The legislature is enjoined to deploy its enormous oversight powers to ensure that the CBN is accountable in the exercise of its autonomy. Independence without accountability is a recipe for disaster. Where there is misconduct or dereliction of duty, it is the officials involved that should be sanctioned. The bank should not be the villain,” said Ogunleye.    

The CBN is central to the economy and tampering with its autonomy could hamper the effectiveness of monetary policy and the management of the macro-economic framework. Such move is also not investor friendly as few would have faith in a central bank controlled by politicians. We understand that the involvement of Emefiele in partisan politics may have provided justification for the proposals. But those who are insisting on weakening the administration of the CBN are not assisted by history.   

When this same idea was first mooted in 2012, two former CBN Governors joined the then incumbent to warn against the idea. The late Mallam Adamu Ciroma and Mr. Joseph Sanusi insisted that the move to whittle down the independence of the bank and weaken its leadership was unwarranted. Across the world, there is a growing recognition that the independence of central banks is necessary for economic growth and stability. We urge the Senate to consult widely with critical stakeholders before amending the CBN Act.