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Tinubu’s CBN is in the making 12 Oct 2023

In his inaugural speech on 29 May 2023, President Bola Ahmed Tinubu took aim at the Central Bank of Nigeria (CBN). He criticised the CBN’s multiple foreign exchange rates policy, high interest rate, and the recent currency swap. The President went further in the speech to make monetary policy recommendations. Approximately two weeks later, he appointed Wale Edun as the Special Adviser to the President on Monetary Policy, before naming him as the Minister of Finance and Coordinating Minister of the Economy.

Many advanced, emerging, and frontier market economies have granted policymaking autonomy to their central banks. Such monetary authorities have the freedom to conduct monetary policy without interference from the political authorities. The CBN Act, 2007 confers institutional and policymaking independence on the CBN. This derives from the premise that central bank’s independence can make monetary policy for achieving price stability more effective as the institution is shielded from short-term political expediency that can cause long-term harm to the economy.

But since 2014, Nigeria has struggled with the idea of the independence of its central bank. Then-CBN governor, Sanusi Lamido Sanusi, made the political authorities uncomfortable by making all-too-regular public commentaries, many of which were not directly related to monetary policy. Central banks should be effective but frugal in communication. But Sanusi was vocal. His public gusts on funds unremitted by the national oil company, NNPC, which was found to be overstated, were putting the then-incumbent President Goodluck Jonathan in bad light. Any lack of intent to harm the political interest of the President, who was angling for re-election in 2015, was undermined by Sanusi’s close relationship with some opposition politicians. So, despite his mild manner, and while still respecting the statutory tenure security enjoyed by the CBN governor, President Jonathan had to send Sanusi on a three-month terminal leave that ended at the expiration of his first term of office.

President Jonathan appointed Godwin Emefiele as CBN Governor to replace Sanusi. But he himself lost the 2015 presidential election, despite fund withdrawal from government’s account with the CBN that was in part funnelled into his campaign. President Muhammadu Buhari decided to keep Emefiele in office, in line with his tenure security and perhaps on the promise to adopt the President’s policy predilections. Emefiele went on to show how a central bank that is not independent is a real and present danger to the institution, the government, and the economy. In the nine years of his leadership, the CBN failed with its core mandate of fostering price stability and lost public credibility. It provided circa N23 trillion financing in Ways and Means Advances to the federal government in seven years, which was beyond legal limits, and which after its securitisation has now substantially increased the debt service obligation of the government. And the N629 billion the CBN disbursed for agriculture financing through its Anchor Borrowers Programme was hijacked by powerful interests, undercutting the nation’s food production.

The political protection from accountability for Emefiele by the group and individual interests he served was going to give way once Buhari’s tenure expired. The former CBN governor – who reported resigned last month – decided to have his fate in his own hands by running for president while still keeping his job as the apex bank chief. This brought him into a collision course with the eventual, official winner of the election, President Tinubu, who thought that the redesigning of the naira on the eve of the election was calculated to hamstring him.

In appointing a new CBN governor, having suspended Emefiele ahead of the expiration of his final term of office in June 2024, Tinubu had diverse lessons to learn on the leadership of the central bank since 1999. At the beginning of the period, a conservative and well-respected commercial banker, Joseph Sanusi, was appointed as the CBN governor and his tenure was neither popular nor obnoxious. An academic economist, Professor Charles Soludo, succeeded him in 2004 and brought intellectual vigour and the force of vision to bear on the CBN, the banking industry, and the economy. In 2009, the leadership of the central bank returned to a banker in the person of Sanusi, whose redoubtable political pedigree enabled him to make difficult interventions in the banking sector and fearlessly engage the political elite. Emefiele, another banker, one that was willing to make compromises, became CBN governor in June 2014.

Tinubu appointed Olayemi Cardoso as the next substantive governor of the CBN last month, not by simply learning from history but by contributing a novelty to it. Mr. Cardoso is his long-term political associate, having served as Commissioner for Economic Planning and Budget when Tinubu was governor of Lagos State from 1999-2007. Cardoso couldn’t have enjoyed the confidence of Tinubu for his new appointment without being his loyalist.

President Tinubu also announced the appointment of four deputy governors for the CBN. Three of them, like Cardoso, are former bankers. The fourth is a former political appointee in the past Kaduna State government. Appointing bankers and politically-exposed individuals as CBN governors imposes the risk of conflict of interest. Tinubu has embraced the risk. Having his loyalist as governor will help him create his version of the CBN. That can be anything but a central bank that would be perceived as independent. But this does not foreclose all the chances of its success.