Joseph Mubiru (1929-1971), was the pioneer Governor of the Bank of Uganda. A highly competent technocrat, he was once ordered to print some money by the country’s military strongman General Idi Amin, to which he politely refused. On professional grounds. He was dismissed and later assassinated. Central bankers live in a gilded world. But their work clearly involves some huge risks.
A rather illiberal debate took place a fortnight ago between Edo State Governor, Godwin Obaseki, and the CBN and the Finance Ministry. Obaseki revealed that some N60 billion was allegedly printed by the CBN for distribution under the monthly FAAC process. Finance Minister Zainab Ahmed declared that what the governor was alleging is “very sad because it is not a fact. What we distribute at FAAC is revenue that is generated… So, it is not true to say we printed money to distribute at FAAC”.
But the governor was adamant: “Zainab Ahmed should rally Nigerians to stem the obvious fiscal slide facing our country. Rather than play the ostrich, we urge the government to take urgent steps to end the current monetary rascality, so as to prevent the prevailing economic challenge from degenerating further.”
On his part, Emefiele mumbled something to this effect: “The concept of printing of money is about lending money and that is our job…It will be irresponsible for the CBN or any Central Bank or Fed to stand idle and refuse to support its government at a time like this”.
The CBN Act 2007 makes currency printing one of its mandates. Monetary authorities normally print legal tender currencies to replace old ones while printing a few more to meet increased needs for cash in a growing economy. What they make from such printing – the face value of the money over and above the cost of producing it –is known as seigniorage.
In the nineties, the Bank of Japan (BOJ) invented a new monetary policy instrument known as “Quantitative Easing” (QE). This entails printing money to buy back securities from the capital markets as a means of injecting liquidity into the economy during stagflation. Remarkably, it worked. And it was not inflationary.
During the Great Recession of 2008–210, western central banks, particularly the American Fed, Bank of England and European Central Bank, implemented successful QEs of their own. An influential paper by Columbia economists Michael Woodford and Yinxi Xie, “Fiscal and Monetary Stabilisation Policy at the Zero Lower Bound” (July, 2020), reaffirms the technical basis of QE.
The CBN has structured more than a trillion naira “intervention funds” ostensibly to bolster economic recovery. However, there is a qualitative difference between the classic QE approach and what the CBN has been up to. The advanced countries never printed money directly to support budgets or for consumption. They instituted QE to shore up liquidity in the economy via the capital markets. What the CBN is allegedly doing is printing money for direct consumption.
The late Chief S. B. Falegan, former Director of Research of the CBN, who passed away in February, confessed that in the nineties, under the military dictatorship, the Mint was put on overdrive; printing naira, which were then loaded into waiting trucks and driven into the mist of the night. A banker of great honesty and integrity, we have no reason to doubt his testimony.
Apart from the penchant for printing, there have been cases of criminal recycling of old naira notes. It was also alleged that billions of new notes disappeared from the Mint, including, alarmingly, one of the steel plates for minting our currency. But this was before Emefiele.
Can we therefore trust all the currency in circulation to be genuine legal tender?
Let me also say that the CBN of today is not what we used to know. It has been hijacked by vested interests in government and the private sector. The cabal and the sharks have a game-theoretic interest in maintaining multiple exchange rates for their own corrupt and rent-seeking interests. And they would do anything and pay any amount to ensure that no reforms are made that undermine this “exorbitant privilege”.
In the 1970s, N1 exchanged for $2. In 1980, N1 exchanged for 80 cents. By 1985, the naira declined to N1 = $1. The Gowon military regime, despite its shortcomings, ran an innately clean government. The Minister of Finance at the time was Chief Obafemi Awolowo. He managed the public finances with sagacity. Nigeria did not borrow a dollar from the international financial markets for the war effort or for the post-bellum rehabilitation and reconstruction. We were on the verge of industrial take-off. Top international manufacturers had invested in our country, ranging from Peugeot to Michellin, Volkswagen, Mercedes and others. Most of the industries collapsed while some moved to Ghana and our ECOWAS neighbours.
According to a social media influencer, before the locust years, we were net exporters of refined petroleum, but today we are net importers; we drove locally assembled vehicles, with a Peugeot plant in Kaduna, Volkswagen in Lagos, Leyland in Ibadan, ANNAMCO in Enugu and Steyr in Bauchi; many of the automobile components were produced locally, such as car seats by Vono in Lagos and Exide producing the batteries, Ferodo producing the brake pads and discs, Dunlop and Michelin producing the tyres and Isoglass producing the windshields; companies such as Sanyo were producing our radios and TV sets; Thermocool was producing our fridge-freezers and air conditioners; we had pipe-borne water distributed through pipes made by Kwalipipe in Kano and Duraplast in Lagos; we wore clothes produced by a dozen textile mills in Kaduna and other cities, employing almost a million people; electricity was relatively stable and was distributed through cables manufactured by NOCACO in Kaduna and Kablemetal in Lagos and Port Harcourt; we had a national carrier with over 50 relatively new planes plying the entire world; and most of the food we consumed was locally grown.
By 1986, N2 was exchanging for $1. By 1992, $1 exchanged for N10. Misguided policies of structural adjustment, linked to profligacy, mindless printing of currency, round-tripping by commercial banks and rent-seeking behaviour by financial regulators were to blame.
Towards the end of the lacklustre Goodluck Jonathan administration in 2014, the naira exchanged at $1 to N164. 8. Inflation stood at eight per cent annually. The national debt was $67.7 billion (N11.24 trillion), of which the domestic component was $10 billion and the foreign $9.7 billion.
When the current APC regime came to power, the national debt rose to $86.3 billion (N32.9 trillion), of which the domestic component is $53 billion and the foreign $33.3 billion. In 2014, our total national debt was 20% of GDP. Today, it stands at 35.51% of GDP.
Within six years, this regime has expanded the debt by 27.47 per cent. What is even more worrisome is the foreign component of the debt, which has increased by a staggering 243.3 per cent. Most of these loans are owed to the Shylock Chinese, for which we have allegedly pledged our national sovereignty and key national assets as collateral. With inflation hovering above 18 per cent and unemployment averaging 33%, we are living on a time-bomb. The naira has plummeted to N480 to the dollar while the Euro exchanges for N577 and the pound sterling at N672.
With dwindling foreign reserves, there is a flight to safety in dollars. Increased dollarisation of the economy is further fuelling dollar scarcity while weakening the naira and reinforcing a vicious cycle of poverty and hopelessness.
The classic scaffoldings underpinning a sound monetary system are: macroeconomic and geopolitical stability, diversified exports, low indebtedness, stable inflation, national competitiveness, economic growth, robust public institutions and a central bank reputed for both integrity and competence. We must embark upon a massive agro-industrial revolution to boost growth and to create jobs while diversifying the economy away from oil dependence. But we must also recognise that some things are beyond the control of even the best central bankers: the quality of national leadership, political stability, security and effective democratic governance.
Economic science and the lessons of the German, Zimbabwean and Venezuelan hyperinflations make it clear that there is a point beyond which you cannot continue to print currency without destroying your economy entirely. Prudence is therefore imperative. The competence and trustworthiness of the central bank leadership matter; as do their integrity, patriotism and single-minded commitment to the Common Good.
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