By Babajide Komolafe
Central banks play critical roles in the society. They control money supply and manage the economy to ensure stable prices, macroeconomic growth and stability of the nation’s currency.
Rationality is one of the critical features of economic agents. Economic players, be it individuals, organisations, whether in the local grass root markets, or in the sophisticated financial markets, seek to behave rational, in response to reality.
In the markets, there is little or no room for sentiments; be it religious, political or ethnic. This is because basic human needs themselves don’t have regard for such sentiments. When you are hungry, you look for food.
It does not matter to you if the person selling the food belongs to your ethnic group or your political party or come from your village. When you go to the market, you buy whatever you need, from whoever offers the best quality at the best price.
This is the domain of central banks all over the world. The economy which they are mandated to manage has little or no regard for sentiments. They are to ensure stability of prices, which always obey the law of demand and supply (ceteris paribus).
Be it interest rates, prices of goods and services, exchange rates, they always obey the law of demand and supply. That is why central banks must do their jobs, take their decisions based on rationality and reality, bearing in mind that in the economy and in the financial markets, you can control the input, you cannot control the output. You can decide on any action, but you cannot decide the result or consequences.
The import is that, central banks should not make decisions on the basis of trial and error. It must be based on time tested and proven principles and procedures of economic management.
It is for this reason that so much power is reposed in the enabling law of central banks around the world. It is also for this reason that employment of staff and top management of central banks are based on competence, merit, maturity and balance.
In developed countries, such appointments are made with little consideration for sentiments of any kind. That is why a Canadian can be appointed as the Governor of the Bank of England, and a woman as Chairman of the Federal Reserve. Furthermore, such appointment is made with significant consideration for the need for continuity and stability of central bank, knowing full well, that the economy and financial markets generally hate instability.
While some countries have mastered these important facts, and hence, ensured that the sanctity of their central bank is not sacrificed for anything or sentiment, in Nigeria we are still learning. We are still experimenting and the Sanusi saga is part of the experiment.
From June 4, 2009, when he was appointed, to the developments of last week, we have been witnessing the result of the last experimentation in the appointment of a CBN Governor.
But the outcome is not surprising. For those who knew Mallam Lamido Sanusi very well before he became CBN Governor, all the actions and utterances he had made during his tenure would not be surprising to them.
In 2008, when he was still an Executive Director with First Bank, he was invited to present a paper on risk management to the annual workshop organised by the CBN for finance correspondents in Calabar.
He not only presented a brilliant paper, he also criticised the CBN, his host, for its response to the banking crisis. Further, during his confirmation hearing, Sanusi dismissed the ten point agenda of the President who nominated him.
The truth is that Sanusi had always been an outspoken and a radical personality. He is never afraid to speak openly against anybody. He is not afraid to take radical decisions. As CBN Governor, these qualities have helped and hurt the nation.
In his quest to fight inflation and stabilise the naira, he took decisions never taken by any CBN Governor. But he also made utterances that no central bank governor would dare to make.
We cannot however blame him. We, especially the Presidency and the Senate were the ones that choose to appoint an outspoken and a radical personality to be CBN Governor. But is not a mistake, rather it was an experimentation. And we are experiencing the result of that experiment.
And we would continue to experiment until those at the helm of affairs come to terms with the facts stated above, that central bank is not an institution that should be subjected to sentiments, whims and caprices of any individual or group.
Now the most dangerous outcome of the Sansui saga, which is even worse for the economy is to go to the extreme of appointing a personality with absolute opposite personality of Sanusi, or a situation where the staff and management of the CBN become too quiet and fearful such that they are reluctant to take bold decisions in response to economic reality.
While these may be good for the interest of some people and groups, the long term effect can be calamitous. We must remember the economy does not have regard for sentiments and political considerations.
While the President has done his bit by nominating another bank chief executive as the next CBN Governor, the onus now lies on the senators, the elected representatives of the people to do their job, and ensure that the appointment is not an extension of our trial and error approach to determining who should manage an economy that has no regard for sentiments and hurting experimentation.