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Fellow Nigerians, The Central Bank Of Nigeria Is Our Greatest Problem By Enobong Udoh

Every economist will tell you the foremost role of any Central Bank in an economy is to manage its money supply; every other role flows from this. Nigerians constantly prod the executive (fiscal managers) but oblivious that their monetary managers have abdicated their primary role thereby jeopardising citizens' welfare.
Regrettably, even the executive on their part are also naive to the fact that there they can achieve minimal success in a chaotic monetary policy environment. The 2016 Index of Economic Freedom measured by Washington D.C Heritage Foundation summarised Nigeria’s economic status as "mostly unfree," rating monetary freedom low at 71.5% behind fiscal freedom at 85.1% (all over 100%), underscoring the position of this paper. In other for this piece not to sound alarmist, let's dive into why our monetary policy for so so long has been almost nonexistent. 

Graduate school economic students (no not undergrads) should recall monetary economic theory of "unholy trinity" as posited by Mundell-Fleming model which states that its impossible for any country to control the exchange rate, capital control and money supply all at the same time but must relinquish one (see Wikipedia).  Up until their flexible exchange rate policy of June 2016, the CBN clamped down on domiciliary accounts (capital controls) in a bid to tighten foreign exchange outflows which to the contrary also negatively affects foreign exchange inflows. Thus, the CBN in its present state (pretend you have not heard their flexible exchange rate policy) is like a currency board merely targeting exchange rate with capital controls thereby losing the power over money supply as demonstrated by the unholy trinity model. 

Yes, this has been since the SAP devaluations to accommodate our balance of payments problem, and as it has been shown empirically, the exchange rate dictates our economic welfare (as it strongly correlates with other key macroeconomic variables). That is why for those born in the '90s, all they ever come to know is CBN continually ‘mopping up excess liquidity.' This is so because the receipts from crude oil sales greatly increases high-powered money. This policy tightening goes on to increase interest rate compounding entrepreneurs woes. The corollary of all these is the low capacity utilization, high unemployment and crime rate in the country. 

To worsen things, the CBN have their hands behind their back in the fight against the ever rising double digit inflation (which is mostly imported) because they have lost control over money supply. However, one may wonder what the economic juggernauts in CBN are up to, when they ought to know all of these. Mind you, these brilliant people mostly management level civil servants are neck deep in the day-to-day bureaucracy. Those of them that have the time, go on to author research papers with the usual disclaimer caveat, "the opinions written here are solely of the author and not that of the CBN". This now begs the question, who then are those opinionated folks in the bank that have us all in this quagmire? 

Now, enter the CBN gang who call the shots, they are called the "Monetary Policy Committee" Members. In serious climes, this committee is populated by folks who have completed at least an MSc in economics but no, here in Nigeria it is populated by lawyers, accountants, business administrators and finance people. So tell me from where will the sound policy come from? Where the finance person or accountant look to grow the bank's bottom-line, by training the economist's eye is on the happenings at macro-level, looking into household balance sheets because he or she knows that that is where the bulk of the consumption that spurs growth come from. No wonder now the CBN is bothered about posting huge balance sheet profits every other year as if that is what Nigerians demand from them.

To explain why things are this way, it is imperative to note that in the CBN's current 12 member committee, there are only 6 members with a graduate degree in economics (to withstand the job's analytical rigors), still short of a majority. Maybe the thinking is that these folks will always have on side the services of hired advisers, but mind you even Nobel laureates in the field hardly agree in detail because every policy has inherent costs. This is why a voting member must have some grasp of the technicalities of the science. But, others might argue, "we now have flexible exchange rate policy, the markets have taken over and we will soon be fine". Unknown to folks like these, the CBN remains a monopoly in this market for which they will continue to rig the 'forward' market in their favor. In a forward market, fringe players (businessmen) come in blindfolded, this poses long-term instability risks to our financial system. So be warned, the forward market is the mother of all Derivatives and is a huge casino. 

In conclusion, this write-up is not to proffer any solutions as they are people heavily paid for this. But will end with a reminder that an exchange rate is simply a price that measures a country's productivity relative to another country. Appreciation of a currency is a sign that productivity is rising or targeted to rise and CBN can cleverly instigate an artificial demand for the Naira to reawaken the real sector.

Enobong Udoh is a development expert.

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