Naira Redesign: CBN Fails Tests of Political Independence
As a creation of law, the Central Bank of Nigeria (CBN) is expected to be independent in carrying out its functions. However, Godwin Emefiele, Governor of the CBN, rapport with the government has set what the market considers as negative precedence after the Supreme Court ruling on the Naira redesign.
Clearly, Emefiele has mixed politics with the apex bank’s core mandates including maintaining price stability, and exchange rates and determining other suitable monetary policies. What the CBN did best in the past is offering overdrafts to the government as a lender of last resort.
The inflation rate has skyrocketed above 6-9% single digit, the exchange rate has worsened and the interest rate is steep. For most countries, Central Bank independence remains the best practice to avoid politicians tweaking the monetary policy in their favour. In Nigeria, central bank independence has been taken for granted.
Agree, there’s some overlap between politics and economics for proper economic management but certain decision remains exclusive to the apex bank. If the ruling to upturn the new naira policy scales through, it will be easier to take the Central Bank to court for failing to stabilize the hydra-headed inflation rate, worrisome exchange rate and steep interest rates in the economy.
CBN spooked the market with its policy and inflict pain on Nigerians as Emefiele becomes a demi-god in the economic and financial space. On strength of Supreme Court influence on naira redesign, the CBN under Godwin Emefiele has failed tests of political independence.
The apex bank and President Muhammadu Buhari’s government have been on good terms with no love lost when either needs support. Emefiele has been giving backdoor financial support to FG to the tune of #24 trillion, against the provisions of the CBN Act 2007.
In a speech, the apex bank chief told Nigeria it acted as a lender of last resort. Of course, there appears to be no punishment for crossing the line even when CBN Act states clearly the terms and conditions for allowing FG accessing its ways and means option.
For Emefiele, the bubble has busted with the new naira redesign policy. The CBN had enjoyed federal backing. Prior to the primary election by various political parties in the country, Godwin Emefiele had shown interest.
Citing conflict of interest, critics had asked Emefiele to resign but nay, that didn’t happen. Instead, the apex bank chief went to court to stop Buhari from removing him as CBN Gov.
Unlike his predecessors, Emefiele delves more into political arena at a time when he holds the most sensitive position in the nation’s rank. The rapport with the government has widened the CBN’s independence. Naira’s redesign policy, though excellent for the nation’s financial system, was done to settle political scores.
The timing, the process and the procedures were darkened by self-interest spooked the economic activities and financial markets. Acting as umpire, the Supreme Court spotted anomalies, saying Buhari government acted ultra vires for not consulting stakeholders.
Overtly, the judge and the CBN erred altogether. In this case, the apex bank was outrightly omitted as part of suits filed by political players. This was in stark contrast to the value-added tax (VAT) fight between FG where FIRS was a defendant. For the Naira redesign, CBN was not listed as a defendant in the suit.
It’s all about the ‘Benjamin’.
The fight to restore old naira notes for use in the country was not for the 133 million Nigerians that are poor. Due to inability of the CBN to carry through the process without stoking pressure to upturn possible benefits it could ever afford the nation as a whole.
Now, it appears like the political fight is for the people they actually put in a situation. The question is, does the apex court in the land has the power to interfere in monetary policy?
In its several sovereign rating reports, Moody’s has always cited a lack of capacity to implement reforms as Nigeria’s major challenge- the naira redesign policy is another one.
With different expectations, the CBN goofed for not carrying out due diligence on how to implement a policy that cut through the veins of the nation. Supreme Court ruling anchored majorly on the failure of the executive, and the CBN to consult stakeholders is also a thing for review.
The question is, is CBN part of the suit? Upturning the apex bank’s major decision with national impact will set a bad precedent. Would this decision to reverse monetary policy affect other functions of the bank including determination of interest and exchange rates?
Supreme Court had in its judgment said, “A policy of this magnitude should not be taken without consultation and must be in line with the global best practices”.
In the judgment delivered by Justice Emmanuel Agim, on behalf of a panel of seven Justices, said: “I, therefore, hold that no reasonable notice was given and therefore, declared the policy to be invalid.
The imposition of a limit after collecting the old notes constitutes an illegal appropriation of private property. The old notes shall remain in circulation until the 31st December of 2023,” the apex ruled. Naira Steadies as Banks Issue Update on FX Purchase
