THE House of Representatives and indeed the National Assembly must shun all entreaties to restrict the independence of the Central Bank, because the economy will benefit immensely when the Bank maintains its independence.
This is according to Prince Anthony Olatujoye, a former director and legal adviser to the Central Bank of Nigeria, who gave the advice when he presented a memorandum on the Bill for an Act to amend the Central Bank of Nigeria Act (No7) 2007 to the House of Representatives joint committees on Banking/Currency and Justice on Monday 22nd of October 2012.
Sounding the note of warning, Olatujoye who is the managing Partner of Difigland Partners, in Abuja, noted that he had carefully examined the proposed Central Bank of Nigeria Act 2007 (amendment) Bill 2012 and concluded that the rationale for same appears unclear and therefore capable of pushing Nigeria to unnecessarily take the back seat on the fundamentals of modern Central Banking.
Speaking further, he said if the proposed amendments are allowed to pass, Nigeria may be the only country in the 21st century to downplay the objectives of central banking thus pushing this virile institution into the realm of mere appendage or instrumentality of government.
Noting that the proposed amendments hinged on essentially two pillars which are the composition and chairmanship of the Board of CBN and the power to consider and approve the Bank’s annual budget, he averred that in line with global best practices and the general principles of Central banking, the are three areas in which the influence of government must either be excluded or drastically curtailed namely; Personnel Independence, Financial Independence and Policy Independence. He opined that setting goals for central banks (by government) subordinates the bank to government control. For instance, government may set goals for low inflation and low employment for the central bank to carry out, but where such goals are set by the central bank, then there is room for discretion. Prince Olatujoye drew inspiration from Sylvester C. W. Eiffinger and Jakob De Haan in their works on central bank independence, that for a central bank to defend its goals, it must wield effective policy instruments because it is free to choose the means by which it achieves it goals, arguing however, that a central bank is not independent if it requires government approval to use policy instruments.
He added that even in socialist countries, the creation of independent central banks is part of a more general attempt of these countries to create the institutional frame work needed for orderly functions of a market economy stressing that the extensive recent literature suggesting that inflation and central bank independence are negatively related, thus prompting governments to consider enhancing the autonomy of their central banks.
On the composition and chairmanship of the Board of the CBN which is one of the focal points of the CBN Act 2007 (amendment) Bill 2012.Prince Olatujoye said the current CBN Board having the Governor as Chairman, four Deputy Governors, Permanent Secretary Federal Ministry of Finance, Accountant General of the Federation and five external Directors as members is in sync with international best practices. He further stated that it is worrisome to seek to exclude Deputy Governors from Board membership and appoint in their stead, directors of National Planning Commission, Federal Inland Revenue Service etc who, with respect, may lack the requisite credentials to understand the dynamics of modern central banking. A Central Bank whose Board is dominated by civil servants, not abreast with the rudiments and principles of central banking will forever have sleepless nights.
On the proposed removal of the powers of the Bank’s Board to consider and approve the annual budget and placing such powers in the National Assembly, Prince Olatujoye noted that in all the countries where Central Bank Independence thrives, constitutional provisions on government budgets are not in any way different from the provisions of the Nigerian 1999 constitution as amended.
On the remuneration of the CBN Governors and the Deputy Governors, which the Bill under consideration seeks to amend, Olatujoye agreed that the President as the appointing authority, should fix the remuneration of the Governor and other members of the Board in consultation with the Revenue Mobilization, Allocation and Fiscal Commission and the CBN Board.
Prince Olatujoye further stated that
(a) The National Assembly committee on Banking and Currency could increase its over-sight functions through more regular meetings and collaborations with the Central Bank;
(b) On the part of the CBN, it is necessary that periodic consultations with the National Assembly Committee on Banking and Currency be fostered and maintained; and
(c) Information sharing on the workings of the system can bring about mutual understanding .Section 8 (4) & (5) of the CBN Act should serve as sacrament for a robust National Assembly /CBN understanding.
In his conclusion, Olatujoye said in line with modern Central Bank laws worldwide, the era of Central Bank independence appears unstoppable.