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Does CBN fund govt deficit with treasury bills auctions?

By Henry Boyo

‘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 is government borrowing to finance the deficit. If you understand public finance well, you will know it is the function of CBN to ensure the economy is well funded. So many of this your criticism of CBN do not add up in the context of Nigerian financial system which is why nobody in authority seem to pay attention to your criticisms and opinions. Have a nice day”

Governor, Central Bank of Nigeria (CBN), Mr Godwin Emefiele

The above is a rejoinder from a ‘wiser’ reader to an article published recently in 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 shared to your box.

In view of your illustrious pedigree in the banking community, it would be careless for anyone to hastily dismiss any comment you make with regards to that sector. However, please permit me to defer with your perception of the purpose of CBN’s Treasury bill auctions, which you described as “TB is 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, (DMO). The CBN and 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 document, I will gladly surrender and confess my ignorance on this matter; infact I will on receipt of such authoritative enlightenment, immediately drop my 15 years old advocacy for monetary reform.    I will also give you credit for this revelation, in the last article that I will write, to apologize for misleading readers of my column for so many years.

The CBN’s responsibility is clearly to manage money supply as distinctly spelt out in the enabling 2007 Act. CBN’s sole responsibility for this purpose, is in recognition of the terribly destabilizing 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 and uncompetitive local production, and distortional fuel subsidies, are all symptoms of mismanagement of money supply, which unexpectedly, primarily benefit banks and other financial intermediaries, but certainly not the people.

It may interest you to know that after over 15 years advocacy, I have not received either 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 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 CBN’s Treasury bills auctions, all media houses repeat, word for word, the standard propaganda serially released by CBN that Treasury Bills “is government borrowings to help government fund its budget deficit and support commercial banks in managing liquidity” (see, for example, “CBN to borrow N917bn via T/bills in Q4”: Punch edition 14th September 2017, page 25). The question is why should CBN pay such a heavy levy fee to help the banks manage their own liquidity problem?

Evidently, 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 do you 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, the CBN readily admits that funds are borrowed for the purpose of removing excess money from the system, so 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 CBN paying over 17% 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 cost competitiveness against imports. Why would anyone pay interest of even 1% on funds that will simply be sterilized, when infact, in successful economies everywhere, this has become an abomination, as Central Banks actually charge Money Deposit banks, a small interest for warehousing their surplus funds.

I thank you for reading this message, this far.


“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 UNN, I took a course in Nigerian Financial System. Apart from Monetary policy to stabilize the economy and reduce inflation, the CBN had development functions, Nigeria being a developing economy. The CBN is also a financial adviser to the Federal Government in addition to issuing Naira and managing foreign exchange in and out of Nigerian.

Treasury Bills is a debt instrument of Federal Government with tenure of 91 days, 180 days and one year. Thus CBN is the issuing house for Federal Government. Thus while DMO is issuing house for medium and long term securities, CBN is issuing house for short term securities. I did not specifically mention that 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 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 perculiar situation. Thanks for granting me this audience”.

Columnist rejoinder: No further comment.


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