Why are we not pushing for broad reforms of the warped recruitment process – starting with a law that mandates all positions to be made open and competitive? The focus should be on professionalism not the tribe or religion of those who work at the apex bank or other such important and technical parastatals.
We should not reduce the scandal into an opportunity to lynch one man;Emefiele. And if I was asked, I would say that President Buhari should not entertain the idea of sacking the CBN governor willy nilly. Why? Let me try and list out some reasons;
1. The CBN is meant to be fairly independent. If, going by what Mallam Garba Shehu the Presidential Spokesman said recently, the President left most PDP appointees in position because he wanted to see which of them would key into the ‘change mantra’, indeed the last appointee the president should think of removing under any circumstance, is the CBN Governor. The whole idea is to create an impression of stability and to prevent politicians who may not be versed in economic policy from tossing the economy in different directions. It will not cost Nigeria anything to maintain such a policy. If at all, let the president start by removing all other CEOs who are still observing their tenure – for indeed these other CEOs have committed the same sin (political employments), even if in varying degrees.
2. Flowing from 1 above is the fact that the last CBN Governor was unceremoniously removed. We fought against it then and felt it was unfair. Now, even though Emefiele was the ‘beneficiary’ of Sanusi’s misfortune then, he has carried himself with enough decorum such that revenge needn’t be visited on him. The thing is that we do not have to institute a culture of removal of CBN Governors midway into their terms. Since the term of each CBN governor will overlap into new regimes, removing Emefiele may create an incentive for whoever comes after Buhari to also remove the new appointee midway. This will usher in a period of instability, with monetary policy – and whatever good thing the CBN can do – firmly in the pocket of politicians. I would suggest he be allowed to serve out his term.
3. Who is Emefiele? If Soludo and Sanusi were vocal as Central Bank governors, it is widely held that Emefiele is not. Many consider him as quiet. Those who detest him say he is timid. But an objective observer will note that the constant interactions of Sanusi with the press became a disadvantage in his time. I have recommended in other write-ups for the Central Bank going forward – especially as it pertains to the management of the Naira – to speak less and not allow speculators know what it can come up with the next moment. So, on the basis of personality, Emefiele should not be removed.
The problem with monetary policy: There are many Nigerians who believe they will make better CBN Governors. Maybe it’s about the power. I hear the CBN Governor is so called, because he sits on more money than any state governor could dream of. But it is also a permanently controversial position, especially as our economy has become more interlinked with globalization. For months in the beginning of this present administration, the CBN alone ran the economy, culminating in hyperactivity in creating intervention funds for several sectors of the economy. The CBN ran fiscal policy even though it is ill-equipped to so do. In an economy like ours, that is courting trouble.
But even in developed economies, the work of the Central Bank often results in messy controversies, such that no Governor goes unscathed. In the UK for example, Mark Carney, the current Governor of the Bank of England has been recently criticized for supporting immigration, and more importantly for being against Brexit (total exit of the UK from the European Union). If things go awry he will get the blame. Before Carney, Governor Mervyn King was criticized for being too strong. And it was under him that the financial meltdown of 2008-2010 occurred with many of the banks in Canary Wharf and the City of London writing off huge amounts in bad loans.
In the U.S., the current FED Chairwoman, Janet Yallen, has been criticized strongly for being too secretive, for not following a rule-based approach with monetary policies, for not making friends easily with politicians, and for hinting about the possibility of future bank bailouts. Even the Quantitative Easing strategy, which many believe was able to bail out the U.S. economy from a deep recession, by infusing liquidity into the system, has been criticized for focusing too much on banks, for causing inflation due to the same liquidity injection, for causing devaluation in the currency and so on. Banks were equally accused of not lending out to the business sector, for they rather held on to such liquidity to improve their balance sheets. Before Yallen, Greenspan who was once nicknamed “The Oracle” for his stoicism and occasional appearances, was later renamed “Mr Bubble” and “The Undertaker”.
Monetary policy is tricky for several reasons. First in a country like Nigeria, it hardly works as intended. The recent decision of the Monetary Policy Committee to increase the MPR to 12% from 11% is being criticized as a disincentive to business. But the truth is that even the CBN knows that banks are not so sensitive to its MPR. This it admitted in its penultimate MPR meeting communiqué. The idea behind this increase may be to increase deposit rates and narrow the spread that banks are taking on their customers (if the banks will oblige, that is). It may not have commensurate reductive effect on inflation because the current inflationary spike is the result of recent exchange rate policies. The work of the Central Bank is often hit-and-miss. A good central bank is one that is quick to reverse itself when on an obviously wrong course. Policy reversals are the order of the day. There are often no right and wrong answers; no hard and fast rules.
In Economics, we always talk about lemmas. A lemma is an unresolvable problem, usually a formula that is hard or impossible to explain, such as Ito’s Lemma – a component of the Black Scholes formula used in pricing Options. Yes, Lemmas are confusing, but let me explain how they relate to central banking.
We often talk about Trilemmas, meaning a situation whereby given three policy options, a central bank has to choose two. It is accepted that a central bank cannot achieve exchange rate stability, free flow of capital, and national monetary policy independence. One has to give. This is called the “Impossible Trinity”. You cannot achieve low inflation, low unemployment, a strong currency, a strong real sector, a strong banking system, a liberal exchange system, strong trade balances with booming exports, all at the same time. Some goals just have to give. No one should talk as if they can achieve the impossible. For example, importers and Bureaux de Change have cause to complain today, but really, where will the money come from to liberally dole out for feeding our excesses? So we are seeing our currency weakening, and inflation rise, but on the flip side, we have slowed down the descent to full-blown cataclysm, encouraged some local manufactures and farmers, and improved trade balances somewhat. Central banking may be the foolish act of committing to do the impossible, leading to embarrassing conclusions.
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