(From This Day (Nigeria) - AAGM)
Byline: Al=Habib Onifade
AL-HABIB ONIFADE, in his well-researched analysis, declares that the manner in which Professor Charles Soludo, Governor of the Central Bank of Nigeria announced that all banks should capitalise to the tune of N25 billion by December 2005 has thrown up major institutional issues and that the announcement has revealed some fundamental weakness in the institutional framework from which the Bank operates. If these issues are not addressed appropriately and in a timely fashion, the CBN might have been permanently damaged and all credibility lost
The institutional signal sent does not inspire confidence and is reminiscent of events appropriate in a military dictatorship rather than a democratic nation. This is borne out by the Governor's rhetoric at the National Assembly ("there is no going back"). It is further alarming for the legislature to be discovering details of performance and major policy shift on the pages of newspapers.
The political system in a country has direct implications for the effectiveness of the Central Bank. The extent to which the Central Bank will be able to influence economic activities are often curtailed in a military regime, while democracy's checks and balances tend to prevent this sort of executive abuse. Furthermore, the role of an independent Central Bank in a parliamentary system is slightly different from the presidential system. The parliamentary system is so designed that the legislative and executive branches of government are one, while they are separate in a presidential system. This has an important implication for the accountability of the Central Bank. The question then posed is - whom should the central bank be accountable to in a presidential system, such as ours? The Federal Reserve system in the United States of America might provide an answer.
The United States of America has a presidential systems such as the one we have in Nigeria, the US also has an independent Central Bank such as ours, but it is unthinkable that Alan Greenspan, the Chairman of the Federal Reserve (US central bank), will tell Congress that there is no going back. The following quote from a Federal Reserve publication and the Central Bank of Nigeria Decree highlights the inadequacy of the Nigerian system: "As the nation's Central Bank, the Federal Reserve derives its authority from the US Congress. It is considered an independent Central bank Because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government. It does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as 'independent within the government'"
Contrast that with the provision of the Central Bank of Nigeria Decree No. 24 of 1991 as …