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The newspaper headlines, as usual, differed from the content of
the news stories they pointed to. However, the gist of it all was that at a
recent conference in Lagos, the Minister of State for Finance, and the Governor
of the Central Bank of Nigeria (CBN), did not quite see eye-to-eye on the apex
bank’s current reform initiatives.

I seriously doubt, to begin with, that as the media reported,
the honourable minister questioned the necessity for the CBN’s operational and
statutory independence. Despite the sundry dislocations occasioned by the
global financial crisis, a central bank’s independence is not one of the values
that have been called to question. Even in economies such as ours, where
governments have made a good fist of their work, this concept has played a key
role in achieving low inflation.

Still, we could differ on the chances that we would always get
competent hands to run the central bank to ensure that its medium-term take on
price directions in the domestic economy are robust enough to act as a foil to
the politicians’ narrow focus on the short-term imperatives of the four-year
electoral cycle.

Nevertheless, we ought no longer to tolerate a situation where
fiscal and monetary policies are decided in the same room, by the same people
(especially, when this latter lot are beholden to political interests). Of
course, one lesson from the current crisis comes out of the fact that fiscal
policy did take up the slack once monetary policy reached its limits. I would
thus be in the vanguard of any call to strengthen collaboration between
monetary, regulatory, and fiscal policies going forward.

On the question of the central bank’s competence, it is hard to
conclude otherwise than that the incumbent governor has done this economy a
world of good. It is so illogical that we should clamour to trade in a final
cure (because of a near-term allergic reaction) for a major ailment. Of course
we now know that it is proper policy to maintain a firewall between regulators
and the industry they regulate. It is obvious too, that banks occupy a hallowed
place in the economy; although we’d always suspected this from the relationship
that existed between demand deposits, which sit on the liabilities side of
banks’ balance sheets, and the credits they create which sit on the asset side.
Once impaired, especially by the markets’ beginning to question the soundness
and stability of the system, the resulting runs on deposits, affects the
industry’s ability to create loans. Unfortunately, banks’ ability to create
loans on a sustainable basis does matter for any economy’s growth.

The central bank governor

What about the person of the central bank governor? Sanusi
Lamido Sanusi has been described as too showy; a caudillo. In mitigation, we’ve
heard arguments in favour of “stronger institutions”; and inscrutability as a
preferred attribute. Now, I cannot recall many strong institutions that have
been built on the back of invertebrate leadership. Conversely, the gnomic Alan
Greenspan is often indicated as the ultimate model of a central bank governor.
How useful is this? If any financial market took its cue from the coordinates
of its central bank governor’s eyebrow, this was undoubtedly because the market
works well, and that this semaphore had been integrated in its signalling
mechanisms.

But the point of the CBN’s current work is the fact that the
domestic industry had become a burlesque of bank practices. Markets were skewed
so badly that the price mechanism worked selectively, and interested party
transactions held sway over many business decisions.

Financial accounting was a joke. The flipside of this is that as
we make our way tentatively out of the current crisis, we can no longer argue
that financial regulation should remain outside the macroeconomic framework.

When the CBN governor says the reforms are a process, not a
destination, it is my understanding that the apex bank is moving from financial
regulation as a tool for addressing the failings it has since discovered in the
industry, towards using its capacity to design prudential rules for the
industry, to address broader macroeconomic questions, including using it to
moderate the boom-bust cycle.