September 5, 2007

 

Introduction

 

Today, Wednesday September 5, 2007 marks the 100^th day of the post-Obasanjo administration which relinquished power to another PDP government on May 29.   Consequently, the press in Nigeria - and blogs and chatrooms abroad -  are awash with news, analysis and commentaries of achievements or lack thereof in the 100-day "occupation" of the presidential position of Nigeria by Alhaji Umar Musa Yar'Adua,  as well as other state executive positions.

 

All well and good.  However, without ignoring the ongoing presidential and other petitions occurring in election tribunals around the country, and noting the new "politeness" of the new regime compared with the tempestuous one of the ancien regime of Chief Olusegun Obasanjo, in this essay, I turn my attention not so much to perhaps the most dramatic event since May 29, 2007 - the issue of the Central Bank of Nigeria and its governor, Prof. Soludo's monetary reform policy which he dramatically unveiled on August 14 – but to the finances of the Central Bank itself.

 

 

Backing up a bit…..the Suspended Naira Reform Policy and Present Denominations

 

The announcement by Alhaji Yar'Adua on August 24 of the suspension of the controversial naira reform policy moves – dollarization, re-decimalization, re-denomination – came as a welcome relief, not only because the reforms did not follow due process (outlined by the CBN Act 2007) of wide consultation and written approval by the President, but also because they contained sufficient risks and costs that had not been adequately addressed, and which the country might ill be able to afford at this time.   In fact, one felt more alarmed when, given time to listen to all complaints emanating from the Bank's earlier announcement, the Bank still came out with a statement outlining only the benefits of the reforms, and giving scant attention to the risks such as utter confusion of the public and inflation; or the costs of printing new notes and minting new coins.

 

For example, in the United States, beginning in 2006, it now costs roughly 6 cents to manufacture each currency note (it used to be about 4 cents in 1999), and 1.43 cents to manufacture the "penny" (or cent).   In short the notes have (in economic terms) significant positive seignorage, while it costs more to mint the face value of the cent – it has undesirable (and avoidable) negative seignorage.   However, since coins last longer than notes, on the long run, it would be better to encourage greater use of coins than at present in Nigeria.

 

These cost developments are likely to be reproduced and even magnified in Nigeria.  However, while in the United States, the Federal Reserves buys its notes and coins from the US Bureau of Engraving and the US Mint respectively and "sells" them at face value to Banks – meaning that it is the seignorage of the total stock of coins and notes manufactured that constitutes much of the profit of the those printing/minting facilities – in Nigeria the cost will have to be absorbed either by the Central Bank or by the Federal Government – or both.

 

One curious aspect of the suspended proposal was that the lowest coin would be 1 kobo (for a total of 5 coins of 1 kobo, 2 kobo, 5 kobo, 10 kobo and   20 kobo denominations)  and  the highest note would only be N20 (for a total of 5 notes of   50 kobo, N1,  N5, N10 and N20).  This means that the highest to smallest denomination ratio is only 2000, which was carried over from the PRESENT denominations [a total of 3 coins of 50 kobo, N1 and N2 denominations,   and a total number of 8 notes of N5, N10, N20, N50, N100, N200, N500 and  N1000 denominations.]    However, in my study of Table 1 of Notes and Currencies of ten countries and the EU block   around the world, except for South Korean (which has no sub-Won denominations),  one will find that Nigeria currently has the lowest such ratio, suggesting too narrow a denomination spread compared to global practice.   Thus one would suggest a re-distribution of the present   denominations into 7 coins [of worth 1 kobo, 10 kobo, 50 Kobo, N1, N10, N50, and N100,] and four notes [of worth N100, N200, N500, N1,000] for a ratio of 10,000, with an overlap of the N100 denomination using both notes and coins.

 

But again, all of that is NOT the main subject of this essay – rather it is an opportunity to focus on the finances of the Central Bank itself.

 

 

CBN – Giving up Some of Its Money

 

According to a summary statement that accompanies every annual document of financial statements of the CBN:

 

 

QUOTE

 

The Central Bank of Nigeria is the apex regulatory authority of the financial system in Nigeria.  It was established by the Central Bank of Nigeria Act of 1958, as amended by the CBN Act. No. 24 of 1991.  It commenced operation on 1^st July 1959.  The issued capital of the Bank is held by the Federal Government of Nigeria.  The principal objectives of the Bank are to issue legal tender currency, maintain external reserves to safeguard the international value of the legal tender currency, promote monetary stability and a sound financial system in Nigeria and act as banker and financial adviser to the Federal Government.

 

UNQUOTE

 

Thus, the Central Bank is part regulator, part bank of banks, part "bureau de change" of those who might apply – and (since about 1991) part ATM (automatic teller machine) of the Federal Government !

The Central Bank of Nigeria Decree No 24 of 1991 [See http://www.nigeria-law.org/CentralBankOfNigeriaDecree.htm]   was signed 20th June, 1991 , and has since been gone through three amendments:

 

  1.   Decree No. 79 of 1993, cited as the Central Bank of Nigeria (Amendment) Decree  1993 and made at Abuja on the 25th day of August 1993.
  2.    Decree No 37 of 1998.
  3.    Decree No 41 of 1999 (passed by Senate 02/02/05)

 

culminating in the CBN Act of 2007  signed into law on May 25, 2007 by President Obasanjo just before he departed on May 29.

 

When it comes to being a provider of money to the Federal Government, however, it was the new 1991 Decree that significantly reduced from about 15/16 (about 94%)  to 5/6 (83%) what proportion of its surplus (however determined) that the Central Bank  remits to the Federal Government.   Thus Part II Section 5(3) of the CBN Decree 24, 1991 required it to remit 5/6 ^th of its surplus to the Federal Government coffers, and retain 1/6^th of it to General Reserves.   These remittances to the Federal purse since 1998 are reflected in Table 2.

 

 

Looking at the CBN Annual Reports and Financial Statements

 

If the Central Bank were a state, its total income would compete most favorably with each of   richest oil-bearing states in Nigeria.   If we look at Table 2 [Summary Income & Expenditure Account of the CBN for the Years 1998 – 2006] and Table 3 [Revenue Allocations of some of the Richest States in Nigeria + FCT; June-Dec 1999 to December 2005], we will find that in the year 2005, CBN earned a total income of   N94.429 billion, higher than that of Delta State [N84.172 billion], but just lower than those of Rivers State and Bayelsa State respectively [N114.796 billion, N104,955]. The earlier years were far more dramatic, with the Central Bank earning N122,665 in 2003, compared with   N52,366 billion, N40,928 billion, N32,856 billion and N32,445 billion  for Delta, Rivers, Bayelsa and Akwa-Ibom States respectively.

 

In the interim, the operating expenses as a percentage of total income increased dramatically from as low as 33.66% in 2000 to 80.54% in 2006. [Operating expenses comprise staff costs, administrative expenses, depreciation charge, provision for doubtful loans and overdraft; currency issue expenses, and other operating expenses].   The actual expenses themselves more than QUADRUPLED from N32.089 billion in 2000 to  N130,878 in 2006, while the total income was less than double   [N95.336 billion  in 2000 to N162.500 billion in 2006.

 

Another interesting matter to note is that the currency issue expenses more than doubled from N24.009 billion in 2005 to N48.333 billion in 2006, which might not be unconnected with the new N1000 notes produced in 2006.

 

With regard to surpluses that can be appropriated, these have been as high as 57.75% of total income in 2001, and as low as 5.45%   in 1999. Between 2004 and 2006, we first saw it fall from 10.46% (2004) to 8.60% (2005) before rising to 19.15% in 2006.  On an absolute level, these surpluses have been as high as N52.759 billion (2001), as low as N1.893 billion (1999), but recently picked up from N6.766 billion in 2005 to N25.935 billion in 2006.

 

Finally, the General Reserve of the Bank is as high as ever:  N50.721 billion in 2006 compared with N7.419 billion in 1998, an almost 7-fold increase, compared with an almost 4-fold increase in total income [N41,652 in 1998 compared with N162.50 billion in 2006.]

 

 

The Nation's External Reserves – How Much Do we Really Have?

 

Table 4 shows Nigeria's External Reserves 1998 – 2006 read off from (and in some places recalculated from ) CBN Publications (End-of-Year Balance Sheets), and also includes information on foreign exchange rate (Naira to dollar) movements during those same years. It shows that our external reserves (a sum total of convertible currencies, IMF holdings of  reserve tranche and special drawing rights; and gold)  increased from US$5.701 at the end of 1999 to about US$43.79 billion at the end of 2006 – an almost 800% increase.

 

The external reserves are held overwhelmingly in convertible currencies – greater than 99.99% - which comprise of (i) currency accounts with foreign banks (ii) time deposits and money employed (of which the liability for Naira value of foreign currencies on behalf of customers in various foreign accounts for letters of credit transactions and other purpose is a portion) (iii) Domiciliary accounts (iv) Other Foreign Securities and (v) Sundry currencies and travelers checks.

 

If our external reserves have increased eight-fold since 1999, how come we Nigerians don't feel this increase?   Why can't most of the almost US$44 billion be spent RIGHT NOW to improve our electricity, our roads, our schools, repair our refineries, improve and security and so on?

 

Well, the new Minister of Finance Dr. Shamsudeen Usman (and an immediate past Deputy Governor, Operations at the CBN) recently explained before the Senate during his confirmation exercise on July 17, 2007 that the nation does not really have $43.6 billion in our foreign reserve to spend just like that, but only $8.8 billion because $2.3 billion belongs exclusively to the Federal Government tier; $31.3 billion  belongs to (or better yet "in") the Central Bank  in its partial role as a "bureau de change" and the rest of the money ($9.9 billion) which was in an Excess Crude account was the only one that could be distributed, out of which $1 billion had already been committed to various transactions in the pipeline. [These are summarized in Table 5.]   The Central Bank Governor Dr. Soludo has made a similar explanation sometime in the past.

These explanations are obviously valid ones.  Suppose you go up to a Bureau de Change at an airport, and you give it your U$20 and they give you back British Pound Sterling BPS10.  Has the Bureau de Change become richer by the $20 that you gave to it?  No.  The transaction  would have been an EXACT wash, except that the BdC charges you small service fees for the exchange - maybe 1-3% of total transaction plus another minimum service charge - and also makes profits your and other other people through differential rates of "buying" (at a lower rate) and "selling" the currency (at a higher rate).

 

In what amounts to the same thing as a bureau de change, the CBN manages our oil money - received overwhelmingly in dollars - but "prints" money equivalent to MOST OF IT in Naira (except for EXCESS CRUDE money) that it distributes to all the tiers of government.  However, it must always HOLD that amount that it distributes in the event that the states and Federal Government want to come back to it AT ANY TIME for dollars, since our CBN IS NOT AUTHORIZED to print dollars yet! :-)

 

Again,  we note here parenthetically that unlike the CBN which manipulates the volume of money, proposes the money denominations AS WELL as prints the money (or independently determines the agents that do so), in the US Federal Reserve System, while the Federal Reserve Board also concerns itself with tweaking the money supply, it is the Bureau of Engraving and the US Mint under the direction of the President and Congress that denominates and prints the money, but then  SELLS it (at face value) to the Federal Reserve Bank.  As an outcome of the recent Naira policy fiasco, this separation of functions may be worth looking into for its merits in Nigeria.

 

Anyway, there you have it – we have only the excess crude money to spend, and it is only US$8.8 billion.

 

 

Prior Scrutiny of the CBN by   NEIC (September 1996, May 1999)

 

In a September 1996 one-hundred-and-sixty-six-page document titled "Economic Recovery Programme 1996-1998" prepared by the National Econmic Intelligence Committee chaired by Prof. Sam Aluko during the Abacha administration, a number of references were made to the Central Bank of Nigeria, then headed by Dr. Paul Ogwuma.

 

QUOTE

 

Executive Summary

 

Pg xv ff.

Plugging Expenditure Loopholes
 
7.  Reducing avoidable government expenditures is a means of achieving effective resource mobilisation for the Economic Recovery Programme:  In this respect, government should consider the following:

  [a]  the suspension of financial aid to religious pilgrimages for the
       next three years.  This will make available, at least, $330
       million over the three-year period for the economic recovery
       programme;

…….

  [f]  the suspension of purchases of furniture, vehicles and office
       equipment during the recovery period is also expected to
       substantially reduce government expenditure.

  [g]  the write-off over a ten-year period of the debt owed to the CBN
       will yield a savings of N2.4 billion for the 3-year recovery
       period.


Economy in Public Expenditure

8.  Sight must also not be lost of the uncontrolled expenditure by Government parastatals such as the CBN, the NNPC, the NPA, NEPA, the NMA, NIGERDOCK, Shipping Lines, Airways and FAAN.  Some of these parastatals generate revenue in foreign currencies and they assume that they have the autonomy to expend same as they deem fit, irrespective of the overall interest  of the society and the foreign exchange needs of the
Government.

9.  Releases of funds to the various parastatals under each ministry should be made to the parastatals directly with only notification to the supervising Ministries.  The current practice of releasing funds to the parastatals through the supervising Ministries has tended to encourage profligate expenditure in both the supervising Ministries and in the
parastatals.

Debt Management

10.  The debt stock in December 1995 was U.S. 32.6 billion, excluding unpaid arrears of U.S. $11.3 billion.  In spite of these high debt service rations and in spite of the curtailment of new borrowing, the debt stock continues to increase rather than decrease.  This continued increase in the debt stock is a reflection of the inherent weaknesses in the current debt management strategy which has concentrated on debt rescheduling and debt
conversion.

11.  The strategy for external debt management must rule out debt forgiveness, abandon debt rescheduling, rely heavily on debt buy-back, debt repayment and the possible utilisation of whatever proportion of the alleged estimated U.S. $ 98.8 billion stashed away by Nigerians in foreign banks, part of which can be borrowed or retrieved for the liquidation of the excruciating external debt.

12.  Domestic debt is estimated at about N373 billion, 72.59 per cent of which is owed to the CBN.  In the first ten months of 1995, the total cost of servicing the domestic debt, including debt owed to contractors, was N23.351 billion, as against the budgeted amount of N13.00 billion.  There is a critical need to review the practice of employing CBN Ways and Means Advances as a mode of deficit financing by the Federal Government.
Current estimate is that N17.19 billion, or about 72.59 per cent of the payments on domestic debt, was earned as income by the Central Bank in the first nine months of 1995.  The earning tends to dissuade the Central Bank from restraining Government from running fiscal deficits.  Since the bulk of Government's domestic debt is money owed to itself through the CBN, this proportion of the domestic debt should be written off in
phases over the next ten years.

Monetary Policy

13.  The Economic Reconstruction Programme seeks to sustain the current reforms in the Financial sector and to make it a viable partner in the determined effort to increase production in all sectors of the economy. Towards this end, appropriate financial measures and policies would be devised, including:

   [i]  the complete restructuring and reorientation of the policies and
        programmes of the financial system [CBN, money and capital
        markets] in such a way as to integrate and domesticate them and
        make them promote the Development objectives of Nigeria;

  [ii] complete removal of retail functions from the Central Bank so
        that it can concentrate on its primary functions.

 [iii] ensuring more favourable rates of interest to promote production
        in the vital sectors of the economy;

  [iv] increasing the competence of Nigerians to participate in and
       negotiate more effectively with the International Financial
       Institutions to the benefit of the Nigerian economy in the
       resolution of its debt problems;
 
  [v]  taking appropriate measures for the training fo Nigerians in
       financial and monetary management at home and abroad;

 [vi]  monitoring more effectively the activities of the national and
       international financial institutions to the advantage of the
       Nigerian economy.

Interest Rate

14.  Of major concern is the mechanism for determining the rate of interest.  The argument that the interest rate should be determined entirely by market forces ignores the fact that there is a complete breakdown of the market mechanism as huge sums of money are hoarded by the financial system for purposes of speculation in the foreign exchange
market.  This situation is aggravated by the increasing gravity of capital flight.  In the absence of an effective market mechanism, positive real interest rate should be achieved by ensuring a relatively low rate of inflation.  Since the ultimate objective of Government is growth and development, the interest rate must be at such a level at which saving and investment are simultaneously encouraged.  In this regard, discriminatory interest rates for the prime-movers of the economy need be introduced as is the case in most developed and developing countries.

Exchange rate

15.  The naira exchange rate had depreciated rapidly since the introduction of the Structural Adjustment Programme [SAP] in 1986.  The naira/US dollar exchange rate fell from about N1 = $1 in August 1986 to N3.86 = $1 in September 1986 and to about N85 = $1 in March 1995.  Various policy initiatives in the foreign exchange marked had failed to stem the trend in the annual depreciation in the exchange rate of the naira.  Even though the deregulation of the interest rate and of the exchange rate had consistently led to higher cost of production, the vast majority of bankers and of the manufacturers, against all expectations, continued to clamour for further deregulation of the rates.  The pressures from the World Bank/IMF are even more telling and behind the scene are
threatening political and economic stability.

16.  Since March 1995, an official naira exchange rate of N22 - $1 had coexisted with the autonomous exchange rate of N85-$1.  The dual exchange rate regime should be maintained while taking measures to strengthen the exchange rate of the naira ultimately to the level of the present official rate and much further lower than N22 = $1.  The current clamour for the merger of the two at a high autonomous rate should be resisted.  The consequences of a further depreciation of the naira are not in consonance with the overall objectives of an economic recovery programme.

17.  Though the use of over 72 per cent of foreign exchange by the public sector may reduce the proportion available to the productive sectors of the economy, it should also be conceded that foreign exchange utilization by the private sector can hardly be described as productive as speculation and capital flight by this sector are known to have been enormous. Efforts must, therefore, be aimed at reducing both the proportion of foreign exchange earnings utilized by the public sector and the proportion misused by the private sector.

Monetary Reforms

18.  The following are central to the effectiveness of exchange rate policy:

   [a]  The CBN Board of Management should be drastically overhauled to
        ensure that the Governor of the CBN and his staff do not
        constitute a majority on the Board.  The CBN should adhere
        strictly to its mandate of being a bankers' bank, strictly performing its
        main duty of ensuring stability in the value of the naira and
        providing a sound and effective regulatory framework for the
        financial sector.

   [b]  Change of currency - new naira notes should replace the existing
        ones.  This is essential for the effective mopping up of the
        so-called excess liquidity in the economy, especially in view of
        the assertion by the CBN that at least 45 per cent of the money
         in circulation is outside the banking system.

 

UNQUOTE

 

More of the report can be read on:

 

http://groups.yahoo.com/group/AlukoArchives/message/20
Parts One and Two of Executive Summary of NEIC Economic Recovery
Report  1996-1998 - An Alternative to the Medium Term Programme of the World Bank/IMF

 

Three years later, on its way out in May 1999, NEIC issued another seventy-two-page  report titled "Report of the Activities of the National Economic Intelligence Committee, 1994-1999", and this time had this to write on page 33ff:

 

QUOTE

 

Chapter 5

Observations / Findings

 

45.  Against the background of its various activities over the five (5) years of its existence, the NEIC made a number of detailed observations and recommendations on critical issues of social and economic policy.

 

46.  Some of the observations/findings are that:

 

CBN/FMF

 

(i)  Both the CBN and the Federal Ministry of Finance appeared to be laws unto themselves.   Unfortunately for the country, both were for most of our period, headed by accountants who paid little or no regard to the economic consequences of their policies and activities.   Also both were World Bank/IMF enthusiasts.  They were more concerned with balancing the books than with the dynamics of economic development and growth.   Policy implementation and fund management were undertaken by both with little depth and dynamism;

 

(ii)  the kind of naïve liberalization policy which is encouraged in Nigeria and which allows individuals unlimited access to foreign exchange for frivolous uses, does not exist even in the industrialized countries of North America and Europe;

 

(iii) a relatively strong naira to stimulate production and employment is actively discouraged by the CBN and the FMF.     It should be noted that because of a grossly undervalued naira combined with the high interest rate, both of which are actively encouraged by the CBN and the FMF, not many new industries have been set up in Nigeria since 1986.   Consistent with this stagnation, the subsisting industries have been suffering from reduced capacity utilization from about 75 per cent in 1986 to about 30 per cent today, yet the demand for foreign exchange escalates, leading to the conclusion that the demand for foreign exchange by manufacturers is largely speculative and forms part of capital flight;

 

(iv) eighteen (18) projects for which huge foreign loans were raised could not be located ie do not exist.   The unilateral cancellation of such loans was responsible, in part, for the supposed decline in Nigeria's foreign indebtedness from US $32.5 billion to U.S. $28 billion in 1997…….

 

CBN/FMF and World Bank/IMF

 

72.     The hold of the World Bank and the International Monetary Fund (IMF) on the CBN, Federal Ministry of Finance and the National Planning Commission has been unduly pervasive to the detriment of the national economy. It was as a counter measure to this that NEIC in 1996, produced a 241 page document on "Economic Recovery Programme 1996 – 1998; An Alternative to the Medium Term Programme of the World Bank/IMF" which was presented to the Head of State, C-in-C.   The effort of the Committee in this respect has not been productive as the Federal Government has up, to date, failed to consider the document.  In the process, Government finds itself in a quandary as it neither implements the recommendations of NEIC nor those of the IMF/World Bank.   The result is that the degradation of the productive capacity of the Nigerian economy which the NEIC Recovery Programme sought to reverse continues to deepen…..

 

 

Chapter 6

Recommendations

 

75.     Arising from its monitoring activities, contacts and observation, the Committee recommends the following:

 

 

(i)                   Boards of Corporation and Parastatals

 

All Corporations and Parastatals, including the CBN, which have no Boards should have their Boards reconstituted as soon as possible;

 

(ii)                 Exchange Rate Value of the Naira

 

All Efforts should be made to prevent further deterioration in the exchange rate of the Naira.  The exchange rate of the Naira should be supported by Government.   Such support will require that:

 

(a)     the abuse which is prevalent under the policy of liberalization is stopped through greater and improved surveillance.

(b)     Judicious utilization of foreign exchange by Government is ensured through more transparent budgeting;

(c)     The amount of Estacode spent on public servants should be drastically reduced and more use should be made of officials in the Foreign Missions while also reducing the sizes of most delegations that travel abroad.

(d)     Importation of frivolous items are discouraged;

(e)     NEIC's economic recovery programme which emphasizes production instead of financial manipulation be implemented.

(f)       The autonomous exchange rate should not be anchored to the black market rate as is currently done by the CBN and the FMF.   The current rate of N90 to a dollar in the autonomous foreign exchange market is unacceptable to NEIC.   The naira should be made to appreciate through appropriate macro-economic policies.

(g)     To further strengthen the Naira exchange rate and to ensure judicious and productive use of foreign exchange, all purchasers of forex at AFEM should be made to provide at least 75% of the Naira cover for such purchases from their own resources.   Under no circumstances, therefore, should banks be permitted to extend credit in excess of 25% of the required Naira cover for businesses wishing to purchase foreign exchange.

(h)     The ceiling on business and personal travel allowances should be re-imposed at $5000 and $1000 per annum respectively.   At present, no limit is proposed

(i)       There should be foreign exchange budge for each Ministry/Department/Parastatal of Government for both revenue and expenditure which should be strictly monitored and adhered to.   In this respect, the foreign exchange revenue and expenditure, especially of the CBN, the FMF and the Parastatals should come under the same scrutiny and approval by Government as is applied to the other ministries and agencies of government.

 

END QUOTE

 

Again, the full report can be read on:

 

http://groups.yahoo.com/group/AlukoArchives/message/19

 

The above lengthy quotes above are provided to emphasize that some of the same problems identified by NEIC as far back as 1996 still exist today – a CBN apparently being "a law unto itself", including spending money as it wished, and unduly influenced by IMF/World Bank policies; an undervalued Naira in need of strengthening through "appropriate macroeconomic policies" which encourage production and not financial manipulations; and a CBN with some crucial expenditure and revenue budgets which should brought under the scrutiny of Government.   Some of the recommendations have been overtaken by events, including by law under the CBN Act 2007. Most remain germane however.

 

 

What All This  Means   - and some Last Words

 

 

The above information depicts a government institution – the Central Bank - awash in money, and willing to spend much of it on itself – salaries, best real estate in Abuja, Lagos and a few states,   (and until recently) a primary school for its staff, etc.  It is debatable whether law should not be made requiring the CBN to cough up more to the federal purse – that is whether it should become a greater cash cow for the Federal Government or a mere cost center.

 

One is aware that there is a general conventional wisdom that our institutions in Nigeria are inefficient due to the high level of interference and politicization of their decision-making process, particularly during the military regime.   Consequently, the notion that the greater the autonomy or independence conferred on or wielded by certain institutions, particularly one with high technocratic obligations such as the Central Bank, the better.   This also has to do between the broader tension between the centralization and decentralization of power and authority in any large organization.

 

There is significant value in such a notion, but autonomy and independence should never mean isolation or lack of consultation, particularly in a democracy where there are ELECTED officials as representatives of the people – never mind for now the admittedly flawed nature of most of their elections – and where there are great financial needs and other priorities in the larger society.  

 

Will all Central Bank decisions henceforth have to be cleared with the Presidency?  That would be absurd, but the CBN Act 2007 and its successors should be followed closely, and common political sense applied always.  For example, raising interest rates today, injecting $10 million in the forex market next week or stipulating a reserve requirement for banks – the usual tools of Central banks in affecting money supply –   can be readily changed in the next week or month if the desired direction of change in the financial indices is not attained. However, this can in no way be compared with the more long-lasting dollarization, re-decimalization and re-denomination which were proposed and which have now been suspended - or annulled.

 

Comments are welcome.

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