Chairmanship of CBN: Memo to National Assembly

The current effort to change the chairmanship of the Central Bank of Nigeria should be supported to sail through. There is a Bill currently at the National Assembly with a proposal to remove the governor of the CBN as the Chairman of the Board of Directors of the Bank, among others. The Bill, which has passed the second reading in both the Senate and the House of Representatives, has been committed to appropriate committees. This is certainly not the first effort to be made in this regard.

This change is long overdue. My long-held view is that the chairmanship of the CBN should be separated from the position of the governor.  I have been convinced about this, especially since the days of the financial crisis and the rumblings that resulted from it and the actions taken by the central bank. Recent events involving the CBN and its principal officer, the governor, have rather reinforced, not diminished this conviction.

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The last time the National Assembly attempted to amend the provisions of the CBN Act, led to an uproar. Many serving officials of the Bank, as well as past employees, including former governors, protested. They said the move would whittle the powers of the institution which would in the end make it an appendage of the Executive arm of the government.

As I have argued elsewhere, the failed or aborted attempt by the National Assembly to amend the provisions of the 2007 Act in respect of the chairmanship of the CBN could be said to be buried in a shallow grave and certainly will be exhumed and looked at again someday.

One of the major concerns about a central bank is the need to secure its independence from political interference. This simply means the need to insulate the bank and its policies, as much as practically possible, from the influence of the political leadership of the country at any point in time. Just as we need to save the bank from political influence, there is a need also to consider the best corporate governance practices for the bank. By the current provisions of the Act, the governor is also the chairman of the board of the bank. That concentrates too much power on a single individual. The SEC, for instance, is a regulatory agency, yet its chairman is separate from the Director-General. Some people may argue that the role of the CBN is more pervasive, but the issue has to do with corporate governance. Talking about corporate governance without a proper delineation of powers is only but a ruse.

In this respect, I suggest that an external chairman be appointed to the board of the bank. Who can be appointed to this post?  My proposal is that the chairman should be held by, perhaps, someone of the calibre of a former or retired Justice, an eminent lawyer, or a technocrat. Strange? No, not at all. It could also be a reputable former CEO of a bank of a certain minimum age, one who also would have met the criteria for being appointed the governor; a notable academic with proven in-depth knowledge of economics and banking matters. All these are possible candidates for this position.

Under such an arrangement, the governor will remain the chairman of the Monetary Policy Committee, where he will be able to put to full use his knowledge and skills in managing monetary policies.

The chairman on his part will have oversight over all aspects of the bank’s decisions, including the area of banking regulation. Will this undermine the power of the governor and the independence of the CBN? No.  It will rather strengthen it.

This is in line with the system in Kenya, East Africa’s biggest economy. The Central Bank of Kenya has a Board of Directors that comprises 11 members. The members are the Chairman, the Governor, the Permanent Secretary to the National Treasury, and eight non-executive directors appointed by the President.

On its part, the Board is responsible for oversight of the Bank’s functions. The Board formulates policies for the Bank, except monetary policy, and reviewing performance both of which remain under the leadership of the governor.

In Nigeria, the CBN Act of 2007 provides that the Board of the Bank shall comprise a Governor, who shall be the Chairman; four Deputy Governors; the Permanent Secretary, Federal Ministry of Finance; five Directors; and the Accountant-General of the Federation.

For the MPC, the Act provides that its membership will comprise the Governor of the Bank who shall be the Chairman; the four Deputy Governors of the Bank; two members of the Board of Directors of the Bank; three members appointed by the President; and two members appointed by the Governor.

The current arrangement in Nigeria under the CBN Act of 2007 confers on the governor both posts. So, when critics say that the Act confers too much power on the governor, it is evident. By making him Chairman of the Bank’s board and of the MPC, the Act unwittingly gave the occupant too much power that could become a dangerous weapon, if it is misused. After all, power is as good or bad as the mind of the person that holds it.

A change in the current structure will bring desirable impact on the conduct of the affairs of the CBN.  It will remove the seeming impression that the Governor is an “absolute” chairman, having almost limitless powers.

Altering this structure will give meaning to the provision in Section 9 of the Act, which says that: “The Governor and the Deputy Governors shall devote the whole of their time to the service of the Bank and while holding office shall not engage in any full or part-time employment or vocation whether remunerated or not except such personal or charitable causes as may be determined by the board and which do not conflict with or detract from their full-time duties”.

With this, a situation where an incumbent central bank governor strays into active partisan politics will not happen again. The time to end it is now.