Amending the Central Bank Act:Memo to The National Assembly-By CDD



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The Centre for Democracy and Development,CDD , a civil society organisation  has called on the National Assembly  to ‘step down’ the bill on the amendment of the Central Bank of Nigeria Act.In a memo to Public Hearing of the Joint Committee of Banking and Currency and Justice of the House of Representatives holding on Monday 22 October 2012,which was addressed   the Chair of Joint Committee on Banking and Finance and Committee on Justice, House of Representatives Federal Republic of Nigeria,CDD’s Director, Dr Jibrin Ibrahim argues that the proposed bill  will weaken the autonomy and independence of the CBN.

“Having carefully studied the proposed Bill, the Centre for Democracy and Development believes that the proposals will have the overall effect of weakening the autonomy and independence of the Central Bank of Nigeria.   This will be an unfortunate outcome as all over the world, the trend today is to make Central Banks autonomous from Government. Central Banks play a crucial role in the modern economy. They are the Government’s banker and banker to the banking system more generally, they create and manage money and provide monetary stability and financial stability. Direct government manipulation of central banks has always been counterproductive because governments try to respond to political imperatives of the moment rather than focus on the long term interest of the economy. It is for this reason that the Centre for Democracy and Development calls on your esteemed Joint Committee to step down this private member’s Bill.”

The memo also notes that “It might be the case that the current Governor of the Central Bank has irritated members of the National Assembly by certain comments he has made. Be that as it may, we believe that there is great value in Central Bank Governors telling Executives, Legislators and Citizens hard truths that are in the overall interest of the economy and the Nation.”

Read the full text of the CDD memo below:

22nd October 2012

Memorandum to Public Hearing of the Joint Committee of Banking and Currency and Justice of the House of Representatives holding on Monday 22 October 2012 in Conference Room 028 of the New House of Representatives Office Complex on:

A BILL FOR AN ACT TO AMEND THE CENTRAL BANK OF NIGERIA ACT 2007, NO. 7, TO APPOINT A PERSON OTHER THAN THE GOVERNOR AS THE CHAIRMAN OF THE BOARD OF THE BANK, EXCLUDE DEPUTY GOVERNORS AND DIRECTORS AS MEMBERS OF THE BOARD, DIVEST THE BOARD OF THE POWER OF CONSIDERATION AND APPROVAL OF THE BUDGET OF THE ANNUAL BUDGET OF THE BANK; AND FOR OTHER RELATED MATTERS. 2012 (HB.276)

 

Hon (Sir) Jones Chukwudi Onyereri

Chair of Joint Committee on Banking and Finance

And Committee on Justice

House of Representatives

Federal Republic of Nigeria

This memorandum is prepared by the Centre for Democracy and Development (CDD), a civil society organisation, for presentation at the public hearing holding this morning at the House of Representatives apropos the private members bill sponsored by Hon. Jagaba Adams Jagaba of this esteemed Chamber.

The Bill before you seeks to pass an Act to amend the Central Bank of Nigeria Act, 2007. The purpose is to among others to divest the Central Bank of the powers to prepare and approve its budget and to remove the Governor as the Chairman of the Board and to exclude Deputy Governors and Directors from the Board. In addition, the Bill seeks to divest the Board of the Central Bank of the powers of consideration and approval of the annual budget. In the proposed new board, the majority of members will be civil servants including the Accountant General of the Federation, Permanent Secretaries of the Ministries of Finance and National Planning and other government officials from the Federal Inland Revenue Service and the Nigeria Deposit Insurance Corporation and the Chair of the Board will be a former Governor or Chairman of the Central Bank.

Having carefully studied the proposed Bill, the Centre for Democracy and Development believes that the proposals will have the overall effect of weakening the autonomy and independence of the Central Bank of Nigeria. This will be an unfortunate outcome as all over the world, the trend today is to make Central Banks autonomous from Government. Central Banks play a crucial role in the modern economy. They are the Government’s banker and banker to the banking system more generally, they create and manage money and provide monetary stability and financial stability. Direct government manipulation of central banks has always been counterproductive because governments try to respond to political imperatives of the moment rather than focus on the long term interest of the economy. It is for this reason that the Centre for Democracy and Development calls on your esteemed Joint Committee to step down this private member’s Bill.

We would like to draw the attention of the Joint Committee to some disturbing historical antecedents. In 1971 when Idi Amin Dada, Uganda’s famous dictator ran out of money to run the Government. He was furious when the Governor of the Ugandan Central Banks told him he could not just print money through the Central Bank and continue his spend thrift promotion of his megalomania. He reminded everybody that he was the boss and ordered the Central Bank to print more money. This action of course caused massive inflation and led to the collapse of the economy. It is widely believed that Idi Amin subsequently ordered the assassination of the Central Bank Governor, Joseph Mubiru who had told him it’s unwise and dangerous for people with power to toy with the Central Bank. It was easy to kill Mubiru but impossible to address the problems caused by interfering with the Central Bank. The prices of goods soared while essential commodities simply disappeared from the market. The moral of the story is that you do not mess with the Central Bank just because you have power. Our National Assembly must reflect deeply on the wider implications of their move to bring the Central bank under the direct control of the President and the Parliament.

It might be the case that the current Governor of the Central Bank has irritated members of the National Assembly by certain comments he has made. Be that as it may, we believe that there is great value in Central Bank Governors telling Executives, Legislators and Citizens hard truths that are in the overall interest of the economy and the Nation. The law that our highly esteemed National Assembly made in 2007 granting autonomy to the Central Bank is a good law and we counsel that precipitate action should not be taken to dismantle key elements of that law that have entrenched the autonomy of the Central Bank. The institution is too important for our collective survival for a risky action to be taken even if such action is done in good faith.

We believe that the National Assembly has been correct in its insistence that it must review and amend appropriately the budget estimates from Executive bodies. It is however extremely risky to expose the Central Bank budget to politicking and negotiations in the National Assembly because the institution takes strategic confidential decisions that support and protect the economy in which outcomes can be affected negatively if the raison d’être of decisions are exposed in public. In addition, the presidency, ministries, departments and agencies might make attempts to influence the Central Bank budgets for short term gains that might in the long run harm the economy considerably. We must also avoid a situation in which an Institution as important as the Central Bank has to lobby the National Assembly to carry out its statutory functions. You all recall that at the beginning of this year, President Goodluck Jonathan himself had to warn his ministers to stop “lobbying” legislators to get additional projects into their budgets. The insistence of the National Assembly to do the budget of the Central Bank is extremely dangerous because the Bank not only supervises other banks, runs monetary policy but also prints money. It is too risky to open a vista for possible “wheeling and dealing” on the budget of the Central Bank.

The Centre for Democracy and Development has enormous respect for the positive contribution the National Assembly is playing in scrutinizing governance and protecting our democracy through their insistence on protecting their own autonomy and thereby defending the principles of the separation of powers enshrined in our Constitution. In the same spirit, we believe that to respect the autonomy of the Central Bank is a principle that will serve the greater good of our Nation and our economy.

In considering this issue, the House of Representatives should also take on board current practices in central banking. For example, the Reserve Bank is the central bank of the Republic of South Africa and has an extensive degree of autonomy in the execution of its duties. Indeed, section 224 of the Constitution, 1996 states, “the South African Reserve Bank, in pursuit of its primary object, must perform its functions independently and without fear, favour or prejudice, but there must be regular consultation between the Bank and the Cabinet member responsible for national financial matters.” The independence and autonomy of the Bank are therefore entrenched in the Constitution. The Governor holds regular discussions with the Minister of Finance, and meets periodically with members of the Parliamentary Select Committees on Finance. The Reserve Bank submits its Annual Report to Parliament and is therefore accountable to them. Parliament however does not prepare its budget.

The SA Reserve Bank Act, 1989, as amended, provides for a board of directors consisting of 15 directors. Among them are the Governor and three Deputy Governors, who are appointed by the President. The Governor and Deputy Governors manage the daily affairs of the Bank including its budget as they are the only executive directors on the Board and work on a full time basis.

In 2002, the Bank of Ghana Act 2002 (Act 612) was enacted by The Ghanaian Parliament to replace the repealed bank of Ghana law, 1992 (PNDC L 291) PNDC L 291 with the aim of amending and consolidating the law to enhance the autonomy of the Bank of Ghana. The primary objective of the Central Bank as provided under Act 612, is to maintain stability in the general level of prices and without prejudice to the foregoing, to support the general economic policy of the Government of Ghana and to promote economic growth and effective and efficient operation of banking and credit systems in Ghana, independent of instructions from the Government or any other authority.   The law set out to address the problem of the previous situation in which the administrative set up of the Central Bank of Ghana made it susceptible to governmental control contrary to Article 183 of the Constitution of Ghana, 1992 which provides for the independence of the Central Bank by defining its core functions and insulating the position of the Governor of the Bank of Ghana from political influence. Perhaps, the most notable amendment is Section 4(1) (c) of Act 612 which seeks to liberate the Bank from governmental control. The section authorizes the Bank to institute measures which are likely to have a favourable effect on the balance of payments, the state of public finances and the general development of the national economy. The governing body of the Bank is the Board of Directors consisting of

(a)     The Governor of the Bank who shall be the chairperson;

(b)     The First and Second Deputy Governors

(c)     One representative of the Ministry of Finance; and

(d)     Eight other directors appointed by the President in consultation with the Council of State

It is obvious from the foregoing that the amendments made by Act 612 are geared towards reinforcing the autonomy of the Bank of Ghana from governmental control and ensuring the efficiency and solvency of the Bank whilst promoting transparency in its operations.

The Bank of England which has existed since 1694 and was nationalized on 1 March 1946 gained its independence in 1997. The framework for its governance and accountability is set by the 1998 Bank of England Act. The Board of Directors is responsible for managing the affairs of the Bank, other than the formulation of monetary policy. The Board of the Bank and its Chair are appointed by the Government and it is constituted by nine non-executive directors. The Board however delegates the day-to-day management of the Bank to the Governor and through him to other members of the executive. The budget of the Bank is prepared by the Governor and approved by the Board. By law, the British Government cannot interfere with monetary policy. Indeed, the Monetary Policy Committee as a Committee of the Bank with responsibility for the exercise of its powers in relation to the formulation of monetary policy cannot receive directives from anybody in the Executive or Parliament.

Jibrin Ibrahim, PhD

Director


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