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Sunday, December 10, 2023

As NASS Attempts To Castrate CBN, Why the Action Should Fail



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A lot has been said about the move by National Assembly to stripe the Central Bank of their autonomy via the amendment of its act. Almost every commentator on the issue has spoken against the move by NASS.  Facts discovered from Encarta Encyclopedia on Maastricht Treaty, Federal Reserve Banking in the United States of America [USA] and Bank of England, central bank of United Kingdom; show consistency with those calling on NASS not to temper with the autonomy of Central Bank of Nigeria.


It is a fact that on October 1, 1960 Nigeria became an independent and sovereign nation. Before Nigeria independence however, British authorities superintended her CBN. The British authorities established CBN as a vassal financial outpost in 1959. Till 1963, when Nigeria became a Republic, the face of Queen of England was on her currency. Since the establishment of CBN, the value of Nigeria currency has always been determined by the value of gold reserve in the Bank of England; and NASS attempt to remove the autonomy of CBN will fail and should fail because Britain had relinquished national control over her monetary policies via Maastricht Treaty in 1993.


Fact [1]. The Bank of England was incorporated on July 27, 1694, as a private joint-stock association, with a capital of 1.2 million pounds. In return for loan of its entire capital to the government, it received the right to issue notes and monopoly on corporate banking in England.


Fact [2]. On March 1, 1946, the bank, privately owned for 252 years, was placed under government ownership, the treasury holding the capital stock. The nationalized bank, operating under the charters of 1694 and 1946, manages the British national debt, issues notes, and administers exchange control regulations. The bank is administered by a governor, a deputy governor, and 16 directors; all are appointed by the Crown.


Fact[3]. In 1997 Britain’s Labour government gave the Bank of England operational independence in monetary policy. This means it has responsibility for setting base interest rates in the United Kingdom, independent of the government in power.


Fact[4]. Generally, the relationship between the Federal Reserve and Congress is more complex. On the one hand, because it was created by Congress, the central bank is unmistakably a creature of Congress, being responsible to it for its mandate and its continued existence. On the other hand, the self-financing feature of the Federal Reserve prevents Congress from exercising influence through its budgetary authority. Thus, the Federal Reserve is relatively free from the partisan political pressures that operate in the Congress, although the Fed must report frequently to Congress on the conduct of monetary policy.


Fact[5]. The Federal Reserve is sometimes considered a fourth branch of the U.S. government because it is made up of a powerful group of national policymakers freed from the usual restrictions of governmental checks and balances. Indeed, the Board of Governors is formally independent of the executive branch and protected by tenure well beyond that allotted to the U.S. president. In practice, the president will typically listen carefully to the Fed’s policy suggestions. The Fed and the president frequently share the same economic agenda, but sometimes they have different agendas.


Fact[6]. In the critical area of regulating the nation’s money supply and influencing interest rates in accordance with national economic goals, however, the Federal Reserve is independent within the government. This independence is partially ensured by the fact that the income and expenditures of the Federal Reserve banks and of the Board of Governors are not subject to the congressional appropriation process; the Federal Reserve is self-financing. Its income comes mainly from interest on Reserve bank holdings of income-earning securities, primarily those of the U.S. government. Outlays and other charges are mostly for operational expenses in providing services to the government and for expenditures connected with regulation and monetary policy.

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Fact[7]. Because central banks control the money supply, there is always the danger that central banks will simply create more money and then lend it to the government to finance its expenditures. This often leads to excessive money creation and inflation (a continuous increase in the prices of goods), which can be caused by having too much money available to purchase goods. Inflation occurred in the United States when the government printed Continental dollars to pay for the Revolutionary War. So many were printed that they became worthless, and a popular slogan of the day was “It’s not worth a Continental.” The danger of inflation is particularly acute in countries where the government owns the central bank. Government ownership of the central bank is illegal in the United States, except in national emergencies. European countries agreed in the Maastricht Treaty of 1992 not to allow central banks to lend money to their governments.


Fact[8]. The financial panic of 1907 resulted in the Federal Reserve Act of 1913. This act went further than any earlier legislation in recognizing the importance of stable money and credit conditions to the health of the national economy. Under the Federal Reserve Act, a central bank was reestablished for the United States, the first since the “Second” Bank of the United States. The new bank was charged with maintaining sound credit conditions. To achieve this goal, the Federal Reserve System was given control over the minimum amount of reserves that member banks must hold for each dollar of deposits. It also obtained the power to lend money to member banks and regulate the types of assets they can hold. Members of the Federal Reserve System include national banks, whose membership is required, and state banks, whose membership is optional. Membership requires a bank to buy stock in the Federal Reserve System. Most large banks under state charter have joined the system.


Fact[9]. Maastricht Treaty or Treaty on European Union is a treaty that created the European Union (EU). The treaty was approved at Maastricht in The Netherlands by the heads of government of the 12 members of the European Community (EC) in December 1991 and was signed on February 7, 1992. The 12 nations were Belgium, Denmark, France, Germany, the United Kingdom, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, and Spain. The treaty reflected the intention of the EC nations to broaden the scale of monetary and economic union and begin serious consideration of joint policies in regard to defense, citizenship, and the protection of the environment. Under the Maastricht Treaty, European citizenship was granted to citizens of each member state. Customs and immigration agreements were enhanced to allow European citizens greater freedom to live, work, or study in any of the member states, and border controls were relaxed. The treaty created joint foreign and monetary policies. It called for the eventual creation of a single currency, the European Currency Unit (ECU), and a central bank, which would coordinate the monetary policies of the central banks of the respective nations.


Fact [10]. The treaty mandated that the voters of each member state had to approve the European Union, and approval was hotly debated in some states. While the people of the EC generally agreed on greater European unity regarding citizenship issues and foreign relations, there was considerable disagreement regarding the provisions requiring greater economic cooperation between members. Some countries were extremely reluctant to relinquish national control over their monetary policies, notably Denmark and the United Kingdom. On June 2, 1992, Danish voters narrowly rejected the Maastricht Treaty. However, the Danes voted their approval in May 1993. British voters ratified the treaty, but they did not generally support a common European currency. The European Union was established on November 1, 1993, after the treaty had been ratified by the 12 member states, which then became members of the EU. The EC’s Parliament, Council, Commission, and Court of Justice were retained by the EU.

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Fact[11]. Central banks can be either privately owned or owned by the government. In Europe, central banks are owned and operated by the government. In the United States, commercial banks own the central bank, which is called the Federal Reserve. The Federal Reserve, established in 1913, consists of a seven-person Board of Governors located in Washington, D.C., and the presidents of 12 regional Federal Reserve Banks. Each member of the Board of Governors is appointed by the U.S. president and confirmed by the U.S. Senate for staggered 14-year terms. From among the seven governors, the president also designates and the Senate confirms a chairman of the board for a four-year term.


FACT NASS MUST KNOW ABOUT CBN, GOLD RESERVE AND VALUE OF NAIRA. Bank for International Settlements (BIS) is an international bank founded in 1930 by the Hague Agreements to promote cooperation between national central banks, to provide facilities for international financial operations, and to act as agent or trustee in international financial settlements. Total assets of BIS are about 168,000 million Special Drawing Rights (SDR). Its authorized capital is 1,500 million gold francs, divided into 600,000 shares of 2,500 gold francs each. Shares are held by 55 central banks or monetary authorities. Only two [2] African Countries, Algeria and South-Africa are direct subscribers to the shares. The shares can be subscribed for either directly by the participating central banks or by nominated subscribers in their own countries. To this effect, Nigeria is a nominated subscriber to the shares. The BIS has become a forum for the coordination of international monetary policy, through regular meetings of central bank governors.


From the foregoing facts obtained from Encarta Encyclopedia, NASS move to amend CBN act of 2007 will surely plunge the economy of Nigeria into serious crisis. The first impact of exposing CBN autonomy to politics is the “Continental War” scenario. It could be recalled that Inflation occurred in the United States when the government printed Continental dollars to pay for the Revolutionary War and it occurred when the Central Bank of US had no autonomy.


With the establishment of European Union in November 1, 1993, after the ratification of Maastricht Treaty by the 12 member states, their central banks effectively became private enterprise, just like Federal Reserve in the USA. The global best practices in Central Banking have effectively removed ownership of CBN from government of the day. If NASS is interested in making fundamental restructuring of the CBN act, it has to be through a REFERENDUM, not just a straight jacket amendment by the two chambers of NASS. CENTRAL BANK BELONGS TO THE NIGERIAN STATE. Besides, it is not just possible for NASS to subject CBN to political control because the value of the NAIRA is externally determined. Should NASS go ahead with the amendment, Nigeria will surely face global economic isolation, eventually, the country may go bankrupt.


Emeka Oraetoka


Information Management Consultant& Researcher


Wrote in from Garki, Abuja


P.O Box 18928



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