Funmilayo Odude, Partner, Commercial and Energy Law Practice (CANDELP)

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Is the CBN simply an agent of the federal government? 16 Mar 2023

The poor implementation of the naira redesign policy has generated a wide array of confusion by governments and agencies of the state. The Central Bank of Nigeria (CBN) insisted on and later extended the deadline for swapping old notes for the new ones. The President unilaterally amended the policy. Governments of some states jointly or individually challenged the Federal Government on the policy at the Supreme Court. Interim orders were granted by the court practically suspending the implementation of the policy. And one governor threatened to shut down banks who complied with the policy. It would have been a comical situation if the issues are not very important.

The issues are beyond the poor implementations of the naira redesign and nationwide cashless policy. The reactions to the ensuing scarcity of cash revealed deeper issues of a lack of understanding of the principles of separation of powers and checks and balances in a federal structure, and the independence of statutory agencies such as the CBN.

One of the features of the rule of law is that every person, organ, or institution has its duties, obligations, and powers as prescribed by the law and are thus constrained by the limits and boundaries set by law. The law is the architectural framework by which we run an efficient, organised, and thus productive society.

However, many have accused the CBN Governor, Godwin Emefiele, of acting on the whims and caprices of the President. I had indeed faulted the erosion of the independence of the reserve bank in my last publication in this magazine based on the abuse of the ways and means advances. Is the Central Bank under the control of the Federal Government like other agencies of government that are not statutorily independent? Can the Federal Government, through the Attorney General of the Federation (AGF), answer to the legal challenge against the naira redesign policy and its implementation before the courts?

There have been judicial pronouncements that the CBN is an agency of the Federal Government. The Supreme Court in the case of Obiuweubi v. Central Bank of Nigeria (decided in March 2011) held the position that the CBN is an agency of the Federal Government, relying on the provisions of Section 40 of the CBN Act. Section 40 provides: “The Bank may act generally as agent for the Federal Government, State Governments and local governments where the Bank can do so appropriately and consistently with the provisions of this Act and with its duties and functions as a Central Bank; and on such terms and conditions as may be agreed between the Bank and the Government concerned.” The Court of Appeal in the case of CBN v. Effiong, a case decided in November 2021, held that “there is nothing in its Establishment Act to suggest the view that it is not an agency of the Federal Government.”

The relationship between the CBN on one hand, and the Federal Government and the President on the other hand is governed by law, particularly the Central Bank of Nigeria (CBN) Act 2007. It is important while conducting an analysis of the legal relationship between the CBN and the Federal Government to begin by stating that the Act expressly provides that “the Bank shall be an independent body in the discharge of its functions.” According to Section 1(3) of the Act, this is required “in order to facilitate the achievement of its mandate under this Act and the Banks and Other Financial Institutions Act and in line with the objective of promoting stability and continuity in economic management.”

The CBN acts as a banker and provides economic and financial advice to the Federal Government. This is expressly stated as one of the principal objects of the apex bank in addition to ensuring monetary and price stability, issuing legal tender, maintaining external reserves, and promoting a sound financial system in Nigeria. The authorised share capital of the bank, according to the Act is N100 billion and all the capital are subscribed and held only by the Federal Government.

The policy and general administration of the affairs and business of the CBN is conducted by a 12-member Board that includes the governor as chairman of the Board, four deputy governors, five directors, the Permanent Secretary of the Federal Ministry of Finance, and the Accountant General of the Federation. The Board is responsible for carrying out all activities that are necessary and expedient for the purpose of achieving the objectives of the bank. However, the day-to-day management of the Central Bank is the responsibility of the governor or in his absence, one of the deputy governors nominated by him. He is answerable to the Board for his actions and decisions.

The power of appointment rests with the President, who, subject to confirmation by the Senate, appoints the governor and deputy governors for statutorily fixed terms. The Board, subject to the approval of the President, fixes the remuneration package of the governor and deputy governors. The President can remove any member of the Board. In the case of the governor, such removal must be supported by a two-thirds majority of the Senate. The Act is silent on suspension, a lacuna that was exploited by former President Goodluck Jonathan to, in effect, remove former governor of the bank, Sanusi Lamido Sanusi, before the expiration of his term without seeking the Senate’s approval.

The CBN Governor bears a responsibility to keep the President informed from time-to-time on the affairs of the bank, including report of its budget. The governor is also to prepare a format and presentation on the activities of the bank and the performance of the economy to the relevant committees of the National Assembly. He is to appear before the National Assembly at semi-annual hearings on the efforts, activities, objectives, and plans of the Board with monetary policy, economic developments, and prospects for the future.

It bears repeating like I stated in my last article that the independence of institutions becomes dysfunctional if it is not accompanied with transparency and accountability in its activities. I believe these are some of the ways the CBN Act balances the independence of the bank with ensuring accountability.

But who has the powers with respect to issuance of currency notes? The answer is provided under Section 20 of the CBN Act. It states that the currency notes and coins issued by the bank shall be in such denominations of the naira or fractions as shall be approved by the President on the recommendation of the Board. The forms, designs, and devices on the currency notes must be approved by the President on the recommendation of the Board. Section 20(3) states that the CBN shall have the power, if directed to do so by the President and after giving reasonable notice, to call in any of its notes or coins; and upon expiration of the notice, such notes or coins shall cease to become legal tender. The Act, however, provides that subject to their being stolen, lost, or mutilated, such notes shall remain redeemable by the CBN upon demand.

The relationship between the Federal Government and the CBN will go a long way in determining the validity of the suit filed by the Kaduna, Kogi and Zamfara state governments at the Supreme Court. Without pre-empting the judgment of the Apex Court, it is important for the Court to revisit the relationship between the apex bank and the Federal Government. It is simplistic to view the CBN as solely an agency of the Federal Government, based on a holistic reading of Section 40 of the CBN Act which subjects the agency of the bank to all three tiers of government, and provided it can act in that capacity without breaching any other provisions of the Act, most notably the provision regarding its independence. Section 40 further clearly limits such situations to where terms and conditions have been agreed between the bank and the government concerned.

The power to call in notes and coins, however, rests with the President and the language of the Act is that the CBN exercises that power on the direction of the President. For that purpose, the President and or the Federal Government is a necessary party in a suit challenging the decision to call in the notes. It is, however, implemented by the CBN including the duty of giving ‘reasonable notice’ which is an issue raised in the suit, making the CBN a necessary party as well. Nevertheless, I don’t belong to the jurisprudential school of thought that says the CBN is an agency of the Federal Government for the purposes of having the AGF answer for the decisions of the bank. Nothing in the CBN Act suggests that it is.

For whatever reason, the state governments invoked the original jurisdiction of the Supreme Court that cannot accommodate the CBN as a party. This is a good opportunity for us to have judicial thinking on the intendment of the legislature on the nature of the CBN.

Agencies of the Federal Government are institutions by which the Federal Government exercises its executive powers. The CBN is a bank, banker, advisor, and creditor to the Federal Government. While the involvement of the President and the National Assembly is evident in the appointment and removal of the Board as well as the exercise of some of the powers of the CBN, this is essentially for checks and balances and should not be interpreted to suggest the bank falls fully under the control of the Federal Government like other Federal Government agencies. The CBN and the Federal Government are not one and the same; it would be a dangerous precedent that would affect the independence of the bank to accept that they are.

Funmilayo Odude is a Partner at Commercial and Energy Law Practice (CANDELP).