CIBN Presentation to NASS on CBN Act Amendment - May 28, 2012

7/29/2019 CIBN Presentation to NASS on CBN Act Amendment - May 28, 2012

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AMENDMENT OF THE CENTRAL BANK OF NIGERIA ACT, CAP C4 LFN, 2007

PRESENTATIONBY

MR SEGUN AINA, OFR, FCIBPRESIDENT/CHAIRMAN OF COUNCIL,

THE CHARTERED INSTITUTE OF BANKERS OF NIGERIA

AT THE PUBLIC HEARING ORGANISED BY THE SENATE JOINT COMMITTEE ONBANKING, INSURANCE AND OTHER FINANCIAL ISTITUTIONS AND, JUDICIARY,

HUMAN RIGHTS AND LEGAL MATTERS

28th MAY 2012

PREAMBLEWe are very delighted for the invitation extended to The Chartered Institute of Bankersof Nigeria (CIBN) by the Senate Joint Committee on Banking, Insurance and otherFinancial Institutions and Judicial, Human Rights and Legal Matters to makepresentations and input into the proposed Amendment of the Central Bank of NigeriaAct. Cap C4 LFN. 2007.

The CIBN is a self regulatory banking professional body in Nigeria promoting bankingand finance education, ethics and professionalism consistent with global best practices.It was incorporated as a Company Limited by guarantee in 1976. It attained itsChartered status through Act No 12 of 1990, which was re-enacted as Act No. 5 of 2007.One of its core statutory responsibilities is to ensure the furtherance, maintenance andobservance of ethical standards and professionalism among practitioner of bankingprofession in Nigeria, who are individuals and corporate bodies, including all depositmoney bank, Nigeria Deposit Insurance Corporation and Central Bank of Nigeria.

This presentation represents the views and opinion of a wide spectrum of various

categories members after extensive consultations.

Our understanding of the main thrust of the proposed amendment is that is seek toenhance the powers of the Bank to prohibit transactions with Foreign Currencies inNigeria; compel the Bank to submit its Annual Budget before the National Assembly;alter the governance structure of the Bank and for Related Matters.

The presentation to this distinguished Joint Committee is categorized into five majorparts.

First, is the Introduction which expouses the concept of Central Banking and its rolesand objectives in any economy. The second part examines in context the autonomy or

independence and governance structure of Central Banks with highlights on Internationalbest practice and country experiences. In the third part of this presentation attempts


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are made to review the CBN Act 2007 while the fourth part highlights the implications ofthe proposed amendments. Finally, the fifth part provides recommendations andconclusions from the Institute representing the position of its members .i.e. the bankingindustry.

ROLES AND OBJECTIVES OF CENTRAL BANKS

Central Banks all over the world have the core mandate of ensuring monetary and pricestability as well as a non-inflationary growth. They also have the responsibility ofensuring a sound and stable financial system, in addition to other developmentalfunctions. These mandates and functions are peculiar to central banks, and no otherinstitution performs such functions. These special responsibilities are enormous and havecontinued to pose increasing challenges to central banks, largely because developmentsin the domestic and international economies create significant intricacies andcomplexities in the financial systems. Indeed, the current trend of globalizationexemplified by economic and monetary unions has increased the challenges to centralbanking. The effective discharge of these responsibilities requires that Central Banks betruly independent, shielded from political interferences, have administrative andbudgetary independence and instrument autonomy.

The role of the Central Bank as a regulator has been the focus of much public attentionand debate, particularly in light of the increased pressure that the transformation of thefinancial services industry poses to the supervisory authority in achieving its goals ofsafety and soundness whilst facilitating market efficiency and effectiveness.

The Central Bank primarily is and usually has important financial stability functions. Thestructure of those roles, the responsibilities given and the range of other functionsallocated vary from countries. The monetary policy function clearly dominates the publicperception of central banking activities, notwithstanding the continuation of numerousother functions of great significance to the effectiveness of financial systems andmonetary exchange.The roles of the central bank can aptly be described in two broad

ways i.e. monetary policy and others.

Monetary policy decision-making and implementation are the defining characteristics ofthe central bank. However, there are differences between countries as to how extensivethe central banks independent responsibilities are for these aspects of monetarypolicymaking.

As well as setting monetary policy, a Central Bank concerns itself with other importantfunctions. Encouraging and maintaining financial stability is high on a Central Banksobjectives list, and there has been an especially keen focus and expansion on this remitin recent years, with the global financial crisis throwing many of the worlds largesteconomies into a period of unprecedented turbulence. A central bank also includes

managing a countrys reserves as one of its responsibilities, essentially holding differentcurrencies in its coffers to act as a buffer in-case of currency fluctuation.

The Central Bank also acts as a lender of last resort to the government; this means thecentral bank has the capacity to provide financial assistance to the government in timesof difficulty. This is a role that almost all central banks fulfil, with notable exceptionbeing the European Central Bank.

Given the above, it is important for the Central Bank to have the authority and the abilityto take effective actions to achieve its objectives.

THE AUTONOMY, INDEPENDENCE & GOVERNANCE STRUCTURES OF CENTRALBANKS

Ojo (2000) posited that the role of an autonomous central bank in promotingmacroeconomic stability has in recent years become a topical international economic


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policy issue although the empirical evidence on the relationship between central bankautonomy and macroeconomic stability proxied by price stability is not conclusive. Theprevailing wisdom supports the need to accord a central bank a reasonable degree ofautonomy that will give it substantial discretion to conduct its monetary policy in amanner that will help achieve its assumed central mandate of maintaining domestic pricestability, defined as a regime of relatively low inflation rate and an environment free of

inflation expectations.

In the recent past, there have been conscious efforts by governments all over the worldto ensure that their Central Banks are independent, not just by legal provisions but alsoby actions (Smaghi, 2007). This is to ensure that they are able to achieve their mainobject of price stability. More and more countries in the Organisation for Economic Co-operation and Development (OECD) and beyond have made their central banksindependent. In the European Union, central bank independence is a precondition forEuropean countries to be admitted into the Eurpean Union as enshrined in Article 108 ofthe Treaty establishing the European Community which states that:

neither the ECB, nor a national central bank shall seek or take instructions fromCommunity institutions or bodies, from any government of a Member State or from any

other body.

The ECB noted that the obligation of member states to ensure the independence of theircentral banks puts them in an exceptional position, since it obliges the member states tokeep the assessment of the level of financial resources and the management of thecapital of the national central banks at arms length. The national central bank shouldnot be dependent for its finances on the government, the parliament or any other thirdparty.

Empirical evidences suggests that central banks independence is associated with bettereconomic performance, not only in terms of lower inflation rates (which leads to pricestability in the long run), but also in terms of less output variability. There exists a

negative correlation between central bank independence and inflation. Countries withless independent central banks are more likely to develop high rates of inflation when hitby adverse economic shocks.

According to Martnez-Resano (2004), central bank independence has been typicallyjudged as characterizations of the following degrees of independence:

1. Legal independence2. Goal independence3. Operational independence4. Financial independence

Legal independence ensures that the establishment of the central bank is etched in

law and is undisputed. In some countries, informal arrangements have worked well butmost countries have found that stronger, more formal mechanisms work better. TheEuropean Central Bank and the Bank of England are two noteworthy examples of centralbanks that have anchored their monetary policy-making law in a manner that ensurescontinuity in policy-making. In Nigeria, the Central Bank of Nigeria Act 2007 establishedthe Central Bank of Nigeria as an independent body.

Goal independence refers to the central banks ability to determine the goals of policywithout the direct influence of the fiscal authority. Section 2(a) of the CBN Act of 2007dictates that the principal objects of the bank shall be to ensure monetary and pricestability

Operational independence refers to the central banks ability to freely adjust its policytools in pursuit of the goals of monetary policy, thereby leading to operationaleffectiveness.


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According to Knight (2005), there are three aspects of operational independence: thedecision-making process; the appointment of senior officials; and access to sufficientfinancial resources for the central bank to carry out its work.

Best practices suggest that the decision-making process should be collegial so as to take

advantage of a wider range of experience and expertise.Collegial decision-making alsogives the decisions greater legitimacy. It is for all these reasons that the use ofmonetary policy committees has become the norm.

To achieve operational independence, the board must be constituted in a manner thatensures its impartiality, continuity and competence. The procedures for appointing anddismissing policymakers are as important as the terms of office.

Financial independence is vital to the effectiveness of a central bank. The central bankmust have the full responsibility to conduct its financial affairs without interference fromthe government. This must include the formulation and execution of its own expenditurebudget. Without this, it is much harder for a central bank to sustain the high level of

performance that is desirable (Knight, 2005). Without proper financial means, a centralbank cannot credibly operate independently; it would be under a sword of Damocles ifit must source for the funding of its operating expenses from the government (Smaghi,2007).

Smaghi (2007)further identified four aspects of a central banks financial independence:1. The right to determine its own budget2. The application of central bank-specific accounting rules3. Clear provisions on the distribution of profits4. Clearly defined financial liability for supervisory authorities

Where the above four aspects are absent, central banks are vulnerable to outside

influence from the government. The credibility of the central bank will be at stake, whichwill erode the confidence of the public in its ability to maintain price stability.

In the United States, the Federal Reserve System is self-financing, its earningsstemming principally from interest income on the portfolio of government securities itholds to conduct open market operations. Financing itself internally means that theFederal Reserve is not dependent on Congress for annual appropriations and istherefore insulated from pressures that might otherwise flow from the "power

of the purse." McDonough (2002)

After examining the role of central banks and the importance of independence; it ispertinent that a survey of selected central bank governance structures from around the

world is made. The choice of countries is influenced by economic status and jurisdiction.

A total of eight central banks has been deemed appropriate for this purpose with a splitbetween advanced economies (USA, UK, Canada and Australia) and emerging

/developing economies (Ghana, South Africa, Kenya and Nigeria). The Central Bank ofNigeria will be examined in more detail.

United States of AmericaThe Federal Reserve is saddled with the central banking responsibility in the US. It wasestablished by the Federal Reserve Act (1913). The Federal Reserve system is governedby a 7-man Board of Governors who are appointed by the President and confirmed bythe Senate for a 14-year term each, while the Chairman and the Vice Chairman, who areselected from the Board serve 4 years each as appointed and confirmed by the Presidentand Senate respectively.


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The Federal Reserve System consists of twelve Federal Reserve Banks operatingindependently from different districts across the country. Each Reserve Bank is ownedby the member banks of the district that pay in capital which cannot be traded andcannot be pledged. A 9-member Board of Directors is appointed selected from eachdistrict's member banks, businesses, and the public, in a non-political process. TheBoard of Governors oversees the twelve federal Reserve Banks and their budgets.

The Federal Reserve System consists of a Federal Open Market Committee (FOMC) incharge of monetary policy decisions. All seven members of the Board of Governors havevoting rights, while 5 of the presidents of the 12 regional Reserve Banks have votingrights. The New York Federal Reserve Bank has permanent voting rights while the fouroutstanding voting rights rotate among the other 11 banks. All 12 bank are however partof monetary discussions, with majority maintained by the Board of Governors.

It is important to note in the submission of McDonough (2002) that the debatesurrounding the creation of the FOMC pitted some members of Congress who wantedonly the Presidentially-appointed governors in Washington to set monetary policy againstothers who wanted the regional Reserve Banks to continue control of the Committee.

The compromise reached allows all seven governors and the president of the FederalReserve Bank of New York a permanent vote on the Committee but only four of theremaining eleven district bank presidents a vote at any time. This compromise reflectsthat delicate tension of checks and balances on centralized authority, which lies at thecore of the Federal Reserve System today.

United KingdomThe central bank of the United Kingdom is known as the Bank of England (BoE), and theframework for its governance and accountability is contained in the 1998 Bank ofEngland Act, amended in certain aspects in the 2009 Banking Act. At the top of thegovernance structure sits the Court of Directors, which is responsible for the overall

objectives and strategy of the bank. The members of the Court are appointed by theCrown, and the Court is constituted of the Governor, two Deputy Governors and 9 non-executive directors.

The directors are appointed for three years, while the governors are appointed for fiveyears. One of the directors is designated Chairman of Court by the Chancellor of theExchequer. The Governor oversees the Banks activities; while the Court, in addition tostrategy, is responsible for the Banks budget, capital project, financial framework,management policies, management of the Banks balance sheet, succession planning,etc.

Canada

The Bank of Canada Act, as amended in 2008, sets the legislative framework for theBank and spells out the governance of the Bank. The Board of Directors has theresponsibility for the administration and management of the Bank with respect tostrategic planning, budget matters, financial and accounting, risk management, humanresources, and other internal policies. The Board is comprised of the Governor, seniorDeputy Governor and 12 independent Directors.

The Bank of Canada also has a Governing Council, which is in charge of policyformulation. Membership includes the Governor, Senior Deputy Governor and fourDeputy Governors. Its mandate includes strategy, monetary policy and the promotion ofa sound and stable financial system. The bank is not a government department andconducts its business with considerable independence.

Australia


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Australias central bank, known as the Reserve Bank of Australia (RBA), was establishedby The Reserve Bank Act (1959). The Bank maintains two Boards: the Reserve BankBoard, responsible for monetary policy and financial stability, and the Payments SystemBoard, with responsibility for matters relating to the payments system.

The Reserve Bank Board has nine members: three ex officio members the Governor,

the Deputy Governor and the Secretary to the Treasury and six non-executivemembers, who are appointed by the Treasurer. The Governor and Deputy Governorserves as Chairman and Vice-Chairman, and are appointed for terms of up to sevenyears, and are eligible for reappointment. The non-executive members are appointed forterms of up to five years.

Bank of Ghana

The Central Bank of Ghana was established in 1957. The governing body of the Bank isthe Board of Directors as stipulated in the Bank of Ghana Act, 2002 (Act 612). Thegoverning board of the Bank of Ghana is a Board of Directors consisting of 12 Membersand made up of The Governor, 2 Deputy Governors, one representative of the Ministry ofFinance and 8 other directors appointed by the President of the country in consultation

with the Council of State. The Governor of the Bank is the Chairman of the Board.

The Governor and the Deputy Governors are appointed by the President of Ghana inconsultation with the Council of State for a term of four years each and are eligible forre-appointment; while the non-executive directors hold office for a period of three yearsand are also eligible for re-appointment.

South African Reserve BankThe South African Reserve Bank opened for business on 30 June 1921, making it theoldest central bank in Africa. The first banknotes were issued to the public by the Bankon 19 April 1922.

The SA Reserve Bank Act, 1989, as amended, provides for a Board of Directorsconsisting of 15 directors. Among them are the Governor and three Deputy Governors;who are appointed by the President of the Republic of South Africa, after consultationwith the Minister of Finance and the Board, initially for 5-year terms. On reappointment,the terms may be less than five years.

Four other directors are appointed by the President, after consultation with the Minister,for 3-year terms. The remaining seven directors, of whom one needs to have knowledgeand skill in the field of agriculture, one in the field of labour, one in the field of mining,two in the field of industry and two in the field of commerce or finance, are elected byshareholders at an ordinary general meeting (OGM) of shareholders. The Chairman ofthe Board is the Governor of the Bank.

The Governor and Deputy Governors manage the daily affairs of the Bank, since theyhave, in terms of the Act, been tasked with this responsibility.

The Central Bank of KenyaThe Central Bank of Kenya was established in 1966 through an Act of Parliament - theCentral Bank of Kenya Act of 1966. Under the Central Bank of Kenya Act, theresponsibility for determining the policy of the Bank, other than the formulation ofmonetary policy, is given to the Board of Directors. The Monetary Policy Committee ofthe Bank is responsible for formulating monetary policy. The Board of Directors of theBank consists of eight members: the Governor, who is also its Chairman; the DeputyGovernor, who is the deputy chairman; the Permanent Secretary to the Treasury who isa non-voting member; and five other non- executive directors.


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All members are appointed by the President to hold office for a term of four years andare eligible for reappointment once, provided that a Board member shall hold office fornot more than two terms. The executive management team comprises the Governor, theDeputy Governor and fifteen heads of department who report to the Governor.

The Governor has the authority to incur expenditure for the Bank within the

administrative budget approved by the Board. Within three months after the close ofeach financial year, the Bank is required to submit to the Minister a report on the Banksoperations throughout that year, together with the balance sheet and the profit and lossaccount as certified by the auditors appointed by the Bank and approved by the Minister.

OVERVIEW OF THE CBN ACT 2007The CBN Act, 2007 confers legal autonomy on the Bank to achieve monetary stability.The Act also gives the CBN full discretion to implement its monetary policy withoutinterference from the government. For instance, there is a clear limit placed on itslending to the government to a level that is consistent with its monetary policy andtargets. Two other factors that ensure the Banks economic autonomy are its financialcondition and accountability. It is imperative that for the Bank to act independently in

the conduct of its monetary policy, it should not depend on the government forsubvention or financial support of any kind.

Section 6(3)(a) provides that the Board shall be responsible for the consideration andapproval of the annual budget of the Bank. Budgeting is in the ordinary course of theBanks duties and the fact that there is no supervisory body to review the budget doesnot make the CBN unaccountable.

The process of the appointment of the Governor of the CBN, its Deputy Governors andDirectors go through the National Assembly for confirmation. It is therefore inappropriateto require that the Deputy Governors be excluded from membership of the Board. It ispertinent to note the following:

a. Sections 6 (1) and (2) of the CBN Act 2007, provide for twelve (12) members ofthe Board; five (5) internal and seven (7) external. The Governor and the four (4)Deputy Governors comprise the internal membership. There are seven (7)external non-executive members, among whom there are two (2) institutionalmembers.

b. Consistent with the provisions of the CBN Act 2007, the non-executive membersconstitute a clear majority of the Board of the CBN.

c. All members of the CBN Board are appointees of the President of the FederalRepublic of Nigeria and are confirmed by the Senate. They conduct themselveswith the requisite sense of responsibility

d. The CBN Board is dominated by appointees from outside the Bank, who areappointed in strict compliance with the provisions of the CBN Act.

IMPLICATIONS OF THE PROPOSED CBN (AMENDMENT) BILL 2012The Central Bank of Nigeria Act (Amendment) Bill 2012 which is currently underdiscussion, seeks to amend some specific provisions of the Central Bank of Nigeria ActNo 7 of 2007 (the Act) which relates to power on foreign currencies transactions,governance structure and the financial autonomy of the Central Bank of Nigeria (CBN)

Prohibition on transactions in foreign currencies in NigeriaThe Bill seeks to amend S.26 of the Act which relates the power to buy and sell Nigeriacurrency by prohibiting the use of foreign currencies as a means of exchange for goodsand services and other transactions in market, supermarket, hotels, restaurants, airportsand other places of business in Nigeria except by authorised dealers as duly licensed bythe Central Bank of Nigeria.

This implies that:


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The position of the Naira as the only legal tender in Nigeria will be strengthened. Monitoring and accountability of the foreign currencies in circulation will be

enhanced It will reduce the pressure of inappropriate high pricing of goods which could be

inflationary.

Composition of the Board and related Governance mattersIn particular, Section 2 of the Bill seeks to amend Section 6 (2) of the Act, which relatesto the composition of the Board of Directors of the Central Bank of Nigeria by:

a) Changing the current position under which the Governor of the CBN acts asChairman of the Board.

b) Excluding the Deputy Governors and other Directors from membership of theBoard.

In its place, the Bill seeks to constitute a Board comprised of:1 A Chairman, who will be a former Governor of CBN or a Chairman of a Bank or a

former Managing Director of a Bank.2 The Governor.3 The Permanent Secretary Ministry of Finance.4 The Accountant General of the Federation.5 The Permanent Secretary National Planning Committee.6 A Representative of the Federal Inland Revenue Service not below the rank of

Director.7 A Representative of the Nigeria Deposit Insurance Corporation not below the rank

of Director.

This implies that, The composition of the Board proposed by the Bill effectively reduces the impact

of the CBNs Management on board decisions , as it gives rise to a situationwhere only one member of its management; the Governor, sits on the CBNs 7-

member board. This can be distinguished from the current situation where fivemembers of the Management of CBN, in the form of the Governor and DeputyGovernors sit on a twelve 12-man board.

The Board composition proposed by the Bill increases the number of governmentrepresentatives on the CBN Board from two (2) to five (5) despite the almost fiftyper cent reduction in the board size. Consequently the new composition couldgive rise to the perception that there is a government majority on the Board. Italso effectively introduces a political element through its proposal in relation tothe Chairman of the Board and could entrench a CBN that is, by and large viewedas a government agency controlled by government officials. This is capable ofundermining the perceived independence of the Central Bank of Nigeria andmay lead to unintended consequences.

The situation where the Governor acts as Chairman of the Central Banks Board isaligned to international best practices and is designed to support theindependence of the Central Bank, such independence, as mentioned previously,includes the authority of the Central Bank to run its own operations withoutexcessive involvement of the government such as in Australia , Belgium,Canada, Germany, Japan and Netherlands, India, Korea and South Africa andalso to emerging markets like Gambia, Ghana, Botswana, Zambia and Kenya

A survey of 35 central bank boards, in countries at various levels ofdevelopment revealed that, without exception, the Central Bank Governor act asChairman of the Boards of these central banks. It is also pertinent that, in Mexicoand Korea, there are no external directors, as their Central Bank Boards consistsolely of the governor and a number of deputy governors.

The proposed amendment will undermine the independence of the CBN indischarging its functions satisfactorily to achieve the desired macroeconomicstability for the growth and development of the economy. After consideration of


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the above salient points, such amendment can be deemed unnecessary andpotentially harmful.

Many central bank laws set out qualifications for Board members that aredesigned to reduce the risk of conflicts of interest. Board members can comefrom different backgrounds but they must not be delegates of special interestgroups. Some countries have mechanisms which ensure that a wide range of

political interests are involved in the appointment process and so enhance thelegitimacy of the Board

The ability of the Central bank to speak out, if needed, and possibly in criticalterms with respect to economic and budgetary policies, might also be impaired ifthe Governors, or the other members of the Board are perceived to have apolitical affiliation, as this might be interpreted as political interference.

Section 3 of the Bill also seeks to amend Section 7(1) of the CBN Act, such thatthe Deputy Governor that will act for the Governor in his absence will be themost Senior Deputy Governor, rather than the situation under the current actwhere it is a Deputy Governor, nominated by the Governor.

Even though it is appropriate, our view is that this internal mechanism should not be asubject for legislation.

Section 4 of the Bill seeks to amend Section 8(3) of the Act which vests theBoard with the authority to set the remuneration of the Governor and DeputyGovernors, subject to the approval of the President and to replace it with a

provision pursuant to which the such authority will no longer be vested in theBoard but will now vest in the Revenue Mobilization Allocation and FiscalCommission, subject to the approval of the President.

This will negate the International experts opinions that, in order to attract and retain acorps of professionals to do this sophisticated work that is a part of its operations the

Central Bank must be able to offer terms and conditions of employment that arecomparable with those available in alternative jobs in both the public and privatesectors.

The use of a government organization to set salaries would also appear to be in conflictwith the requirement for central bank independence and it could create the perceptionthat the government, through that agency, is seeking to gain undue influence over theCBNs executive management.

Section 2.2 of the Bill has removed the power of the Board of the CBN toapprove the annual budget of the CBN while Section 5 of the Bill proposes theintroduction of a new section 48 pursuant to which CBN will be required to

prepare and submit its annual budget to the National Assembly. While theproposed clause does not, in its current form, specify that approval to such budget mustbe obtained from the National Assembly, however, this issue is implied. It is pertinent tonote that;

Accountability by the CBN goes much deeper than having its budget approved byan independent body.

The danger in having a separate body approve the budget is that it would becomehighly politicized thus leading to adverse effects on the macroeconomicenvironment and monetary stability.

The Central Banks right to determine its own budget was a particularly relevantconsideration in determining whether a national central bank was vulnerable tooutside influence .

Malcolm D Knight of the Central Bank of Brazil, was also of the opinion that:A final precondition for the effectiveness of a central bank is its financial

autonomy. This must include giving the central bank full responsibility for the


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formulation and implementation of its own budget. Without this it is muchharder for a central bank to sustain the high level of performance that is

desirable The central bank must be able to control the size and composition ofits balance sheet in order to engage in the transactions needed to achieve itsestablished monetary policy goals.

Even where the Central Bank of Nigeria retains the right to approve its ownbudget, the requirements of Section 50 of the Act, will ensure that it is subjectedto the requisite level of accountability, given the requirement that it shouldtransmit its audited accounts to the National Assembly and to formally reportthereon to the National Assembly, which Report is subsequently gazetted andmade available to the general public. This will therefore ensure that it meets therequirements of accountability.

OUR RECOMMENDATIONS

Given the above, The Chartered Institute of Bankers of Nigeria on behalf of itsmembers and the Nigerian Banking industry recommend that:

1. The CBN Governor should remain the Chairman of Board of Directors in line withinternational best practices.

2. The Deputy Governors should continue to be members of the Board of Directorsfor effective board deliberations on policies for the economy and financialsystem. This is also in line with international best practices.

3. The diversity in the background of the current Board of the CBN will enhance therobustness of policy decision making process. It is therefore not necessary toreduce the number or populating it with government representatives which willconnote undue interference.

4. The Board of Directors of the CBN should continue to be responsible for theformulation its budget, while the CBN should be made accountable to the publicthrough periodic rendition of its activities to the National Assembly. Theseactivities will include its state of finances and its core mandates. This is also in

line with international best practices.5. Since the CBN is required under the law (S.50) to issue reports on its operationsto the President and the National Assembly, it remains accountable toGovernment and thus the status quo should be maintained.

CONCLUSIONIn conclusion, it is generally agreed that the current CBN Act is a product of severalrigorous efforts to review past policies and laws in other to align with internationalbest practices. Nigeria as an emerging economy cannot afford to be economicallyretrogressive in its policies especially with the independence and autonomy of theCentral Bank of Nigeria in order to guarantee financial stability.

Furthermore, in this era of globalization, Nigeria cannot afford not to follow the globaltrend. A truly independent and autonomous Central Bank of Nigeria has becomemore imperative for the integration of the Nigerian financial system with the worldeconomy in general. It should be emphasized that instrument autonomy withoutfinancial and budgetary autonomy, as obtained in other countries, is meaningless.

What is required now is not to erode the financial autonomy of the Central Bank butrather to build and strengthen relationships that would enhance complementaritiesbetween the monetary and the fiscal authorities, and indeed, all arms of government.

In the light of the foregoing, it is necessary to caution against subjecting the CBNannual budgets to the approval process of the National Assembly, so as not toencumber its operations and effectiveness.

Thank you


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SEGUN AINA, OFR, FCIB

PRESIDENT/CHAIRMAN OF COUNCILTHE CHARTERED ISTITUTE OF BANKERS OF NIGERIA28TH MAY 2012

Acknowledgments & Reference Materials1. Cukierman, A. 1992. Central Bank Strategy, Credibility, and Independence: Theory and Evidence.

Cambridge, MA: The MIT Press.2. Central Bank of Nigeria Act, 20073. Central Bank of Nigeria, Press Release dated May, 3rd 20124. Knight, Malcolm D (2005). Features of an effective central bank: some lessons of the past decade.

Keynote speech delivered at the 40th anniversary celebrations of the Central Bank of Brazil5. Lybek, Tonny (2004). Central Bank Autonomy, Accountability and Governance: Conceptual

Framework, Occasion Paper number 2257103 v3, IMF. (Washington: International Monetary Fund).6. Mahadeva L. and Sterne G, (2000). Monetary policy frameworks in a global context, Routledge,

London.7. Martnez-Resano J. Ramn (2004). Central Bank Financial Independence. Madrid: Banco de Espaa8. McDonough W.J (2002) The Importance of Central Bank Independence In Achieving Price Stability,

Remarks before the National Bank of Poland9. Ojo, M.O. The Role of the Autonomy of the Central Bank of Nigeria in promoting Macroeconomic

Stability.10. Smaghi, Lorenzo Bini (2007). Central Bank Independence: from theory to practice. Speech delivered

at the ECB conference on Good Governance and Effective Partnership, Budapest, Hungarian NationalAssembly

Web References1. Bank of Ghana Act 2002 (Act 612):2. http://www.bog.gov.gh/index.php?option=com_content&view=article&id=130%3Abank-of-

ghana&catid=64&Itemid=1373. http://www.bog.gov.gh/index.php?option=com_content&view=article&id=77&Itemid=1384. South African Reserve Bank Amendment Act, 20105. http://www.resbank.co.za/AboutUs/History/Pages/History-Home.aspx6. http://www.resbank.co.za/AboutUs/Structure/Pages/BoardOfDirectors.aspx7.

http://www.resbank.co.za/AboutUs/Mandate/Pages/Mandate-Home.aspx8. The Central Bank of Kenya Act as Amended 2011. CHAPTER 491

9. http://www.centralbank.go.ke/about/Default.aspx#10. http://www.federalreserve.gov/11. http://www.bankofengland.co.uk/Pages/home.aspx12. http://www.bankofengland.co.uk/publications/Documents/annualreport/2011/2011full.pdf13. http://www.bankofcanada.ca/14. http://www.rba.gov.au/15. http://www.cenbank.org/out/Publications/efr/RD/2000/efrVol38-1.pdf

CIBN Presentation to NASS on CBN Act Amendment - May 28, 2012

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