The Putrid Mess also in CBN (3) – by Les Leba

The object of the earlier articles in this series is to show that the Central Bank's (CBN) condemnation and indictment of banks is as hypocritical as the proverbial 'pot calling the kettle black'! Indeed, the CBN's posturing assumes an immoral

colouration, because in reality, the malaise in the banks was actually instigated by the failure of the apex bank to effectively perform its secondary role as the official regulator and supervisor of the money market.

Some critics have even observed that the CBN was not only negligent, but was also guilty of conscious collaboration with the bank moguls to defraud the system. Such critics wonder why the same CBN audit teams who could not find any wrong doing in over five years of regular auditing suddenly discovered serious criminal infractions within eight weeks of Sanusi's appointment! These critics have demanded that the resident CBN auditors who were sent to the banks at the tail of Soludo's term in 2008 be identified and investigated as collaborators!

Nigerians also wonder why the CBN consciously condoned the poisonous excesses of uncollateralised margin loans in the period of consolidation and thereafter. It is also now apparent that the CBN failed to arrest the fraudulent asset revaluations that formed a significant proportion of the new capital base of banks post consolidation.

Furthermore, the CBN's inexplicable prevarications on the issue of common year ends which would expose the veracity of banks' financial statements has also been cited as evidence of collusion.

Concerned Nigerians have also queried the huge revenue wasted by the CBN to produce and promote the public adoption of new coins in spite of convincing arguments in this column and elsewhere that public acceptance of coins is a function of value and not forceful adoption! Nigerians deserve to be told the real cost of that wasteful exercise!

It is rather curious that just over two years down the line, the new CBN Governor is embarking on another wasteful exercise in the production of lower denomination, but very expensive polymer notes! It still has not sunk in that the current denominations of N5, N10, N50 notes command the purchasing values usually associated with coins (for example, the N100 note is less than $1).

Besides, although polymer notes may last longer, the public have recognized that they fade and peel easily, especially when they are wet or folded; polymer notes will shrivel when they come in contact with any heated object and they are less amenable to folding or excessive pressure, and they are certainly not as durable or cost effective.

Worse still, in spite of assurances that the huge expenditure on mint refurbishment and expansion would make us self sufficient in the production of our currency, the new CBN team has once again indicated that over 70% of the new polymer notes will be imported and paid for in hard earned forex.

Once again, as in the regime of Soludo, Nigerians are being taken for a ride, and no doubt, a lot of money will once again be expended to promote the adoption of new notes, which should perform the role more appropriately expected of coins!

Mark my words, we will be talking about new currencies again in the near future when the inevitable truth that the issue of value in our currency denomination is the real problem and not so much the fabric of the notes! But for now, who cares, so long as agents and currency exporters are happy?!

However, the greater failure of the CBN is not in the area of banking supervision and regulation or even currency management!

The critical failure of the CBN is in its key role in managing price stability in the economy; price stability is defined as ”the ability of a Central Bank to moderate inflation, attain stable interest and exchange rates and create a conducive climate for long term growth and development” (Section 2 of the CBN Act 2007).

Indeed, the failure of CBN in its role of banking supervision, regulation and currency management are, in fact, the symptoms of failure in the management of price stability.

From the above, it is clear that the success of our economy rests squarely on how well the CBN faithfully pursues its core mandate. In the event that very high interest rates (double digit) are antagonistic to industrial and economic growth, and unemployment has been on the steady increase over the last five years, and inflation remains at an annual average of over 12%, then we can safely conclude that the CBN's mismanagement is, in fact, responsible for our tragic economic state, and the deepening poverty of our people, in spite of significantly improved and buoyant export revenue in the last six years!

Consequently, the ongoing braggadocio of the CBN may be seen also as a strategic attempt to divert attention from its own failures. So far, Sanusi has not come up with any serious, workable strategy that would bring down interest rates or the resuscitation of the diminishing industrial landscape or indeed, the reduction of inflation or the determination of an appropriate and market determined value of the naira.

Sanusi continues to tow the path of the failed strategies of Soludo; the CBN continues to see itself in the misguided role of a glorified bureau de change (BDCs),, and indeed, has the temerity to persist in weekly auctions of dollar revenue that it does not earn; whoever heard of the CBN of any economically focused country making dollars liberally available (over $2bn monthly) to BDCs, whose major patrons are smugglers of contraband and looters of public treasury who want to launder their hot cash.

The CBN has never attempted to analyze the use of federally earned dollars sold to BDCs, and the impact, whether negative or positive, to the economy! How can CBN recognize the disastrous impact of smuggling and money laundering on the economy and yet persist in funding the dollar requirement of smugglers and money launderers?!

The Manufacturers Association does not seem to appreciate the relationship between comatose industries and the easy BDC dollar strategy of the CBN. What a pity!

In spite of CBN's recognition that the banks are the main conduits of foreign exchange and round tripping, the CBN still maintains a laissez-faire approach in its sale of dollars to the banks, without any serious attempt to monitor strict adherence to appropriate usage for the benefit of the economy.

The CBN is, of course, aware that its monopoly of both dollar and naira supply is a recipe for economic disaster, such as we are currently experiencing, but it refuses to release this debilitating stranglehold because of self interest of all those who, including banks and public servants, benefit from this skewed market.

The CBN's capture of our export dollar revenue and the substitution of increasingly worthless naira at CBN's unilaterally declared rates (as allocations to the three tiers of government) is in reality the bane of our economy.

These processes create the need for increasingly worthless naira injections into the economy with increasing dollar revenue. The cost of controlling the inflation that would evolve from such huge cash injections into the system every month is about N300bn as per the 2009 budget.

Thus, even when industries and vital infrastructural deficits cry out for lack of funds in the system, the CBN will continue to battle spurious excess liquidity (excess cash) by selling treasury bills at mouthwatering rates to the banks to take out the cash from the system. In this event, our prayers may be for less dollar revenue earning capacity so that we do not constrain our economy with high interest rates and increasing debt.

This is certainly not an appropriate solution as lower dollar revenue in the last year has encouraged the devaluation of the naira in order to ensure huge quantum naira allocations to the three tiers of government, not minding that the inflationary spiral which would ensue would make it impossible for CBN to succeed in its core mandate of price stability. A case of heads you lose, tails I win! Oh my poor country!