Review & Outlook: Safeguarding The Independence Of The Central Bank

 

BY KANMI ADEMILUYI

THE operational independence of the Central Bank of any democratic country has been a key factor in the safeguards that emerged as a stabilising buffer at the end of the Second World War in 1945.

The implosion of the German currency had destabilised it’s democracy, leading to the rise of fascism, the attainment of power by Hitler, and the Second World War which ended with sixty million people dying as a result of a preventable worldwide carnage.

It is incontestable that no democracy could have survived the free fall of the German currency the Mark. It was most absurd that people had to use wheel barrows to freight increasingly worthless currency to purchase a loaf of bread, it was that bad. Democracy inevitably collapsed under the weight of the currency collapse in a country that was an advanced civilisation.

The response very sensibly was to say never again after examining cause and effect. The post-war consensus was that only the independence of the Central Bank from short term political calculations will ensure the desired price stability essential to preserving the value of the currency of a country, thereby preventing ant -democratic forces like Hitler and the Nazi Party from taking over. In addition, inflation was correctly depicted as a punitive tax on the least protected sectors. To ensure that the least protected do not become cannon-fodder for anti-democratic forces, inflation targets had to be set to protect the poor and shore up the purchasing power of the lowest-earning strata. The post-war consensus is eminently sensible and has protected democracies. It is ill-advised to depart from it.

This is why the perceived incursion into the political sphere by the sitting Governor of the Central Bank of Nigeria is seen as untoward. The Central Bank of Nigeria, like the judiciary, must fight with vigour and determination to maintain its independence from politicians who are inevitably fixated on the next elections and crowd-pleasing populism. Nigeria’s perennially ‘nascent’ democracy is too weak not to have a Central Bank that is independent and focused on price stability.

Price stability matters. The continuing depreciation of the Naira has increased the erosion of purchasing power and is affecting the well-being of families, leading to closures of factories in an economy desperate for jobs because of a youthful demographic bulge. The mind bugles as to how many of those exiting the mandatory National Youth Service Corps (NYSC) will get gainful employment within two years of obtaining the discharge certificates. This is a clear indication of inappropriate fiscal and monetary policies in urgent need of a rethink. 

The central bank governor has made too many tactical errors and should have repudiated the perception that he was getting involved in politics from the beginning. Frankly his performance in office is questionable and that is putting it politely. 

 It must never happen again. This must not be taken as a precedence. It will be dangerous and a repudiation of commonsense to do so. Furthermore, the National Assembly should have made a robust intervention as part of its statutory responsibility and oversight function. That it did not is unfortunate. The debacle once again brings to the fore the urgent need to set up a long-delayed Congressional Budget Office (CBO). Done properly, the CBO will assemble the technical capacity to do rigorous preemptive oversight function.

The often criticised media in my opinion acquitted itself very well by pointing out the dangers entailed in what can be charitably described as an error of judgment by the Governor of the Central Bank.

In my opinion, a whole load of safeguards now have to be put in place to insulate  the Central Bank from political interference; this should be a wake-up call. It had better be.