Redefining the operations of CBN, by Arize Nwobu

The new Governor, Central Bank of Nigeria (CBN), Dr Olayemi Cardoso has set out a new agenda which aim to redefine the operations of the apex bank, strengthen the banking system and tackle inflation among other strategic plans towards engendering a better economy.
In a recent gathering with bankers in Lagos, Dr Cardoso noted that going forward, CBN would focus strictly on the primary functions of CBN which are ; ensuring price stability, issuing legal tender currency safeguarding external reserves , promoting a sound financial system and providing financial advice to the government.
He said that he would re-calibrate the policy toolkits of CBN, focus on using orthodox monetary tools and discontinue quasi fiscal interventionist activities of his predecessor, Godwin Emefiele.
At various times, different CBN Governors had set out their respective policy priorities and agenda based on prevailing situations in the financial system and economy, global trends and public sentiments.
Professor Chukwuma Soludo tackled the weakness and fragility if banks among other notable things. His successor, Sanusi Lamido Sanusi further enhanced the quality of banks, eliminated corporate rascalities of bank directors and enthroned good corporate governance and ethics in banks.
Godwin Emefiele who evidently was a scholar of Gerald Epstein, a Professor of Economics, University of Massachussets, Amherst, USA, focused intensely on development financing.
Professor Epstein postulated that central banks play a wider role in developing countries and performed both the traditional and non-traditional functions especially because developing countries do not have vibrant money and capital markets.
But Dr. Cardoso would rather focus strictly on the traditional functions of central banks. In addition, the new Governor noted that his agenda would align with President Tinubu’s vision of achieving a $1 trillion economy in the next seven years.
To help achieve that, Dr. Cardoso muted the idea of banks recapitalization. He said that though the financial system was stable, but that banks lacked sufficient capital to service the envisioned $1 trillion economy, thus the need for them to recapitalize so they could effectively play intermediary role.
It is important to note that the Nigerian economy is largely driven by a predominant bank-based financing system, even as some experts have noted the need for a proper balancing between operating a bank-based system and a market-based financing system which highlights the mechanism of the capital market.
The importance of banks in driving economic growth and development cannot be overemphasized, but it has also been noted that their predominance in servicing the Nigerian economy has severe shortcomings because they rarely lend to the real sector and tend to extract more from future profit of firms.
Also, their conservative disposition and strategies hinder entrepreneurial and industrial risk-taking necessary for innovations crucial to economic growth.
Studies have shown that economies grow faster in a predominant market-based financing system, such that obtains in the USA, because market-based financing system optimally allocates capital and enhance economic performance, engender greater macro-economic stability and catalyzes industrial growth faster and helps to achieve inclusive growth.
Malaysia which share similar characteristics with Nigeria was transformed after it implemented two capital market master plans and has since moved ahead of Nigeria in all metrics.
CBN is a founding pillar of the capital market and it may be necessary for the Bank to also explore any creative ways of supporting and utilizing the mechanism of the capital market for the greater benefits of the economy.
In his new agenda, Dr. Cardoso also expressed determination to cage inflation. As noted by the CEO, Financial Derivatives, ‘’inflation is the biggest thief of value.’’
Dr. Cardoso, said that CBN was combating inflation by adopting an explicit inflation targeting framework to enhance the effectiveness of monetary policy. He noted that the Bank is using regular Open Market Operations (OMO) and offering Treasury Bills worth N108.1 billion with three tenors to the investing public to mop up excess liquidity in the banking system.
In addition, the Bank had also inaugurated an internal liquidity management committee which meets daily to assess liquidity. Causes of inflation in Nigeria include the devaluation of the naira, price of fuel, government economic policies, foreign debt, printing of money, pre-election and campaign spending, increment in VAT, insurgency, epileptic power supply, reduction in productivity and others.
CBN would also introduce new foreign exchange laws and guidelines to address the devaluation of the naira towards achieving exchange rate stability. In all, Dr. Cardoso expressed optimism in improving the economy and enhancing public perception of CBN with his team.
He said: ‘’at the end of our tenure, we want to look back and see that our policies have positively impacted people’s lives.’’

Nwobu, a Chartered Stockbroker and Business Journalist wrote from Lagos