“My brother, Nigeria is managing debt not wealth, because a big hole was dug in her pocket after the jamboree called FESTAC ‘77. The TB (Treasury bill) is government borrowing to finance the deficit. If you understand public finance well, you will know it is the function of the CBN to ensure the economy is well-funded. So many of this your criticisms of the CBN do not add up in the context of Nigerian financial system which is why nobody in authority seems to pay attention to your criticisms and opinions. Have a nice day.”
The above is the rejoinder from a “wiser” reader to an article published recently on this column. The response of this columnist is as follows:
“I thank you for your above comments on the article, titled, “Money, money, money everywhere, but none to borrow”, which was recently shared to your box.
In view of your illustrious pedigree in the banking community, it will be careless for anyone to hastily dismiss any comment you make with regard to that sector. However, you will permit me to differ with your perception of the purpose of the CBN’s Treasury bill auctions, which you described as “Treasury Bills is (sic) government borrowing to finance (the) deficit”.
Instructively, any government borrowing to fund annual fiscal deficits is conducted on behalf of government by the Debt Management Office. The CBN and the DMO are independent government agencies with distinct constitutional mandates i.e. the DMO borrows to fund government deficits, based on the loan requirement in approved annual budgets; the CBN, conversely, mops up excess naira liquidity to manage money supply and reduce the threat of inflation, as per its prime mandate for price stability, in addition to its responsibility for banking sector regulation.
I will be indebted to you for any authoritative literature that says anything different from the above. On receipt of such a document, I will gladly surrender and confess my ignorance on this matter; in fact, I will on receipt of such enlightenment, immediately drop my 15 years’ old advocacy for monetary reforms. I will also give you credit for this revelation, in the last article that I will write, to apologise for misleading readers of my column for so many years.
However, it is unlikely that you will find any reference to support the position that the CBN directly lends to the DMO to fund budgets. Indeed, if this were to be the case, the consolidated sums borrowed by the DMO and the CBN, in any fiscal year, would invariably, far exceed the approved budget. So, what do they do with the surplus funds, inappropriately, borrowed at rates which are out of sync with what generally obtains for government’s risk-free sovereign loans?
The CBN’s responsibility is, clearly, to manage money supply as distinctly spelt out in the enabling 2007 Act. The CBN’s sole responsibility for this purpose is in recognition of the terribly destabilising consequences of surplus money, driving an irrepressible inflationary spiral that will decimate all income earners, impoverish the masses and make supposedly progressive economic plans unworkable. Indeed, increasing national debt, with humongous bank profits, despite a prostrate real sector, the sleaze from multiple exchange rates, the emasculating impact of a weak naira, high cost of funds, uncompetitive local production, and distortional fuel subsidies, are all symptoms of gross mismanagement of money supply, which ‘inexplicably’, primarily benefit banks and other financial intermediaries, but certainly not the people.
It may interest you to know that after over 15 years of this advocacy, I have not received any formal or informal constructive rebuttal from any authoritative source, to challenge my widely canvassed observations. This is not because some people do not understand or know what I’m talking about, but it is just that strong interests (personal and corporate) are benefiting from the CBN’s financial recklessness at the expense of people’s welfare.
The media have also invariably become largely compromised, that is why you find that, whenever they try to deceive the masses on the virtue of the CBN’s Treasury bills auctions, all media houses repeat, word for word, the standard propaganda serially released by the CBN, that Treasury bill auctions are “government borrowings to help government fund its budget deficit and support commercial banks in managing liquidity” (see, for example, the report, “CBN to borrow N917bn via T/bills in Q4” (The PUNCH, September 14, 2017 page 25). The question is, why should the CBN pay such a heavy levy fee to help the banks manage their own liquidity problem?
Undeniably, Treasury bills auction is the biggest fraud perpetuated under the guise of monetary management in our country and in most African economies to disenfranchise the masses.
How does one explain borrowing money at extortionist rates because money supply is in surplus? How can anything become more expensive when there is surplus supply? Worse still, if the CBN readily admits that funds are borrowed for the purpose of removing excess money from the system, the same CBN cannot turn around to re-introduce the same borrowed funds back into the system as loans to fund fiscal deficits. This is the job of the DMO, and as far as I know, the DMO does not borrow from the CBN.
Furthermore, how does one explain or justify the CBN paying over 17 per cent to borrow money that it has the authority to freely print. Why would the CBN that is supposed to adequately provide liquidity in the system, consciously and deliberately, increase the cost of borrowing with higher MPRs, which then push the real sector into a hard place, to constrain their access to cheaper credit and their cost competitiveness against imports? Why would a rational government pay interest of even one per cent on funds that will simply be sterilised, when in fact, in successful economies everywhere, this has become an abomination, as the central banks actually charge money deposit banks, a small interest for warehousing their surplus funds?
I thank you for reading this message, this far. I assure you that I am humble enough to be further educated and consequently I invite you to enlighten me, so that I can be as knowledgeable as you (are) in this matter. After all, common sense and intellect are not the sole properties of any one person.
The CBN could attempt to publicly debunk my advocacy, and save themselves the discomfort of the truth, but this is not possible, as they know that I am also confronting the same problems that they have tried endlessly to solve, but in a more realistic and sensible way.
The response from the “wiser one”:
My brother, Thanks. Let me start by stating that your write-ups are not in the context of Nigerian financial system. In my undergraduate days at the UNN, I took a course in Nigerian Financial System. Apart from monetary policy to stabilise the economy and reduce inflation, the CBN has development functions, Nigeria being a developing economy. The CBN is also the financial adviser to the Federal Government in addition to issuing naira and managing foreign exchange in and out of Nigerian. Treasury bills are a debt instrument of the Federal Government with tenures of 91 days, 180 days and one year. Thus, the CBN is the issuing house for the Federal Government. Thus, while the DMO is the issuing house for medium and long term securities, the CBN is issuing house for short term securities. I did not specifically mention that the CBN securities are used to fund budget deficits. What I said is that Nigeria is managing debts rather than wealth through the CBN, and like you observed also through the DMO. I suggest you read Functions of CBN in Money and Banking in Nigeria by Prof W. O. Uzoaga and Nigerian Financial System by Prof G. O. Nwankwo. That way, you will tailor your write-ups to Nigeria’s peculiar situation. Thanks for granting me this audience.
My response: No further comment.
END
I have always had my reservations on the high interest rates of TB & other money market instruments issued by CBN. This seems like the height of corporate irresponsibility by the mgt of CBN. Any rational citizen would rather invest in TB than place such funds in commercial banks. Except proven otherwise, I am constrained to assume the CBN mgt has been compromised and is serving the interest of rent seekers who are trading in money rather than creating sustainable economic & productive entities. If my assertions are wrong, I am open to be corrected!