Saving the central bank (II)

So what do we do about the fact that central banks chase many objectives and definitely have to let some go? Or central banks tend to reverse policies often?

Alan Greenspan was an Oracle. That was a taciturn Central Bank governor…sorry Reserve Bank chairman. He was old and wizened, had seen all that needed to be seen. But he also had his umbilical cord buried in Wall Street, like his predecessor, Paul Volcker.

Greenspan’s final ordeal was his belief that ‘markets will regulate themselves’. Self-regulation was of course a big myth sold by the smart Wall Street boys to old man Greenspan. By the time the markets melted down in 2008, he had to call in the Treasury and Obama rolled out trillions of US dollars to bail out banks that were deemed too-big-to-fail. The moral hazard driving sub-prime mortgages and the spurious Collaterised Debt Obligations (never mind, just another financial abracadabra) written on it, could not regulate itself.

If capitalism was true to itself, those banks – including insurance companies like AIG, carmakers in Detroit and beyond, defense industry behemoths and airplane manufacturers, should have been allowed to die a natural death as a result of the bad bets placed by their management and owners.

Policy uncertainty, inflation to slow Nigeria’s economic growth — World Bank

CBN to sanction banks hoarding new naira notes

This calls to mind another problem that central banks grapple with. Central banking is a game whereby you keep playing your hand very confidently, but you must be keen-minded enough to change tack and head the other way tomorrow. A central bank can pursue a policy of cutting interest rates to stimulate the economy at some point, and then changing tack to start contracting the economy by increasing interest rates after a while.

A central bank can see every reason to pursue a strong exchange rate for a spell, and then decide, based on its own statistics and strategy for the economy, to pursue a weak exchange rate.

What we have found in our society today, is that there is much heckling but little understanding. We now see a situation where a central bank cannot even manage currency without hoopla, looking as if we shall never again be able to change our currency design because our people are used to something and can never be made to like any other thing. This is a tyranny of the people against their institution.

Nigeria is now unable to pursue cashless systems like the rest of the world, because our politicians are used to lumbering cash everywhere in the guise of helping the poor, and we must have to remain in the past – primitive, corrupt, and unaccountable because we are special beings right? It gets so bad, that the nation’s own FBI (the Directorate for Security Services – DSS), is easily coopted by these politicians and actually approaches a court of law with charges of, wait for this… terrorism… against a sitting central bank governor. Not embezzlement. Not mismanagement. Not incompetence. Terrorism no less! This is an agency charged with getting the intel on terrorism in Nigeria. For it to allege such against anyone, it should be sure of its facts, right? Otherwise, the DSS exposed itself as an agency that could take its eyes off the ball and whip up wild allegations against anyone that catches its fancy – which underlines its ineffectiveness against terrorists by the way.

I believe we should protect the central bank as an institution from:

1. Our own ignorance, anger, and overenthusiasm
2. Fifth columnists whose sole idea is to get their hands on the money in the vault
3. People who would want us to remain in the ugly past
4. People with vaunting ambition who believe they can do a better job but who don’t even know what it’s all about.
5. Tribal, religious, and other extraneous considerations that don’t fit in the professional realm.
6. Rumours, hearsays, and deliberate machinations of instability from people with selfish and malicious ambitions.

As it uniquely pertains to Nigeria, a certain House of Representatives member has alleged the stealing of N89 Trillion at the Central Bank of Nigeria. There are all sorts of allegations flying around and the cannon fodder that the opponents of the sitting governor have handy is his quest for political office.

Indeed the quest for political office is unique and will hopefully be explained someday by the chief party. But my contention is whether a political quest should vitiate a central bank from doing its work.  The trigger for the angst this time is the central bank’s currency policy, which not only involves a change in design (at least in color), but a raft of policies that targets a cashless economy.

It looks as if a lot has been done in a hurry on the currency redesign end and I am also not very much excited with the fact that we couldn’t make a great shift on that front. I had advised that we transit to full polymer which are harder to forge, or even to hold in great number. Still, we are achieving some mindset shift with what has been done.

However, some politicians will have none of it, and were able to coopt the DSS into trying to arrest the central bank governor for a grievous charge; terrorism no less. It’s been a very comical affair. I remain solidly behind the idea of moving towards cashlessness for one key reason – its benefit to public sector value-for-money and a reduction in corruption. Except corrupt people who occupy privileged positions want to start collecting their bungs through traceable transfers, we all better slow down. More money will thus be available for the provision of public good.

Nigeria must change, in spite of herself and all of us who occupy this space. Nothing lasts forever, not even our myriad of problems. Those who oppose cashless policy, clutching at every straw, know in their hearts that they do so for very selfish reasons. They need to understand some altruism.

My proposal is that no matter our misgivings about whoever occupies the position of the central bank governor, we should seek to protect the institution. And our institutions must be able to continually perform their statutory functions no matter who heads them.

So, if Sanusi Lamido Sanusi took on the government of Goodluck Jonathan and was stampeded out of office, why should anyone propose the same treatment for his successor? Even before Sanusi, Soludo was denied a second term which he fervently sought. The same thing for George before him. We can see that that position is not really about prestige. It’s like sitting on a hot plate. Occupants are likely to draw so much ire from all sorts of stakeholders, and no matter what they do, they usually fall short at the end in the eyes of many.

This turbulence in central bank leadership is not just a Nigerian affair, as the case of Greenspan showed. Even before Greenspan, Volcker did not find it easy, and after Greenspan and in spite of the super sophistication and centuries-long experience on the side of the US Fed, governors/chairmen who waded through periods of economic crisis, having to take unusual decisions, have always come under severe criticisms.

Godwin Emefiele came in 2014 with a mindset to be an activist in using the instrumentality of the central bank, to intervene in creating employment, not just to remain in his monetary policy ivory tower while the economy goes to pieces. Political decisions in 2016 conspired with a fall in crude oil prices to give us our first recession in 30 years and this was followed by a massive devaluation. I saw through that era that the CBN governor carried a rap for the political leadership.

We were only barely pulling through, fighting off those folks who would rather push Nigeria and the naira down the cliff, when COVID-19 happened, creating another massive recession, from which Nigeria is one of the countries to quickly pull through.

Let us take it easy on the CBN and let no one think governing the bank is an easy affair.