Mark Carney first served as Governor of the Central Bank of Canada, and then he served as head of the Bank of England. So as far as Central Bankers go, he’s probably the most experienced. As a Finance & Economics major, I was obsessed with his policies and ideas. Every press conference he held resulted in a massive fall or rise in the value of currencies and people’s financial prospects. I also thought he was cute, so you can imagine how angry I was when he was accused of fear-mongering when he expressed concern about Brexit. How dare these people to criticize this incredibly clever man for anything other than doing his best?
Despite my irritation, they had a point. By implying that he was on the side of remaining in the European Union, he was compromising the independence and credibility of the Bank of England (the UK’s Central Bank).
In today’s global economic and political system, the idea that Central Banks should be independent is critical to the smooth functioning of the economy. This expectation ensures that they do not prioritize short-term political mandates over long-term economic growth. A central bank that focuses on the short-term and makes decisions tied to an electoral term will implement an expansive monetary policy to stimulate short-term gain at the risk of long-term economic stability. Central Banks’ are expected to have decision horizons unencumbered by electoral timeframes to ensure their credibility. If people think the Central Bank is at the mercy of the government and politics, they are less likely to trust the Bank to act in the economy’s best interest. This is why central-bank members are often appointed for long mandates – eight years in the case of the ECB’s Executive Commission – which are not tied to the political cycle.
Central bank independence comprises three key elements.
- The independence of its members. This means politicians should not be able to influence members of the Bank. It also means that the Bank officials should remain politically neutral to avoid accusations of partisanship.
- The financial autonomy of the Bank. Central banks should have complete control of their operations and not be captive to government decisions and changes. This includes election processes.
- Independence of policy means that Central banks should not be forced to finance government spending. Instead, they must be able to set their objectives and determine which policy instruments they use without concern for short-term political outcomes.
There is evidence to show that the more independent a Central Bank, the less inflation there is in the economy. The chart below shows a clear trend towards a lower inflation rate as the independence of the central bank increases. There is a solid consensus among economists that an independent central bank can run a more credible monetary policy, making market expectations more responsive to signals from the central bank.
So if the Governor of a Central Bank decided to run for political office while still Governor, it would set off alarm bells because their independence would be questioned.
How can you be independent when you are literally declaring a partisan alliance?
This is the question Nigerians are asking the Governor of their Central Bank – Godwin Emefiele after the spokesman for Nigeria’s ruling party APC, Joseph Morka, announced that Emefiele had acquired the NGN 100 million form allowing him to contest for the party’s nomination.
Godwin Emefiele (Meffy for those amused by his questionable policies) has led Nigeria’s Central Bank since 2014. Meffy initially denied this claim and said the form was bought on his behalf. In a Twitter thread, he thanked patriots and farmers and explained that he had ‘not come to that decision.’ Meffy’s supporters claim that his tenure in the Bank has seen an economic recovery and an increase in domestic food production. His critics cite the decline in the value of the Naira and dollar shortages in Nigeria’s import reliant economy. The data shows that his time in this office has coincided with a great decline in Nigeria’s economic prospects.
Several Nigerians have called for Meffy’s resignation in light of this news. Rotimi Akeredolu, Governor of Ondo State called the move unconstitutional and a violation of the Central Bank’s rules. In his initial denial, Meffy explained that if he did decide to run, he would do so ‘without proxies openly and transparently in full compliance with the laws and Constitution of The Federal Republic of Nigeria.’ Nigeria’s Electoral Act requires political appointees to resign their positions 30 days before the party primaries. So basically, if he were to run, he would have to resign his current position as Governor to ensure the independence and credibility of the bank.
In a not shocking twist for those familiar with the chaos of Nigeria’s political process, Meffy decided to seek judgment from Nigeria’s courts to allow him to run for President while still Central Bank Governor. His argument is that he is a public servant and not a political appointee, so he should not have to resign.
The truth is Nigeria’s central bank has not been independent for a while. In August 2019, President Buhari directed the Bank to stop providing foreign exchange for food imports, saying, “the foreign reserve will be conserved and utilized strictly for diversification of the economy, and not for encouraging more dependence on foreign food import bills.” Several domestic and foreign experts commented on how this directive and its enforcement violates the independence of the Bank. To calm the situation, Meffy claimed that this directive was already in line with the Bank’s policies.
If Meffy is allowed to run for president while he is still Governor of the CBN, he will control the country’s central banking agency while contesting for the presidency. It should not be hard to see how this raises a conflict of interest. Not just to the Bank but also to the electoral system. How can we confirm he will act honestly when making policies that affect financial institutions while competing against his fellow Nigerians? How can we be sure he will carry out his role as Governor of the Bank without distraction?
In a relatively sane twist, President Buhari has demanded that members of his cabinet running for office must quit. This mandate excludes the vice president who has also declared his intention to run. This mandate has come after an Abuja appeal court ruled that a section of the amended electoral act passed was unconstitutional. The section in question prevents political appointees at any level from being “a voting delegate or be voted for at the convention or congress of any political party for the purpose of the nomination of candidates for any election”.
Whatever happens, the next 18 months will be interesting for Nigeria and Nigerians. No matter who wins, we are in for maximum chaos. The issue is, can the credibility and independence of the Apex Bank be preserved through this chaos?
Fikayo Akeredolu is a graduate research student at the University of Oxford. Her research focuses on politics, political economy, and international relations in China & Africa. She studied as a Schwarzman Scholar at Tsinghua University in China and received a Masters in Global Affairs.