Last week this column reflected on the centenary of the U.S. Federal Reserve. This week we conclude those reflections by considering the imperatives of excellence in central banking. Central banks are public monopolies that control the issuance of legal tender. The profits that they make from that practice alone – seignorage – amount to billions of dollars. To the reckless, it gives the illusion of unlimited balance sheets. We also cannot run away from the fact that central banks are essentially bureaucracies — peopled, according to someone, by individuals with ‘vague interests in economics’.
Globally, the Russian central bank is the largest in terms of population, with over 72,000 officials. The European Central Bank, a regional institution, has a staff strength of 48,000 people. India has 21,000 while Britain has 1,400. The Fed employs 20,000. China, with its population of 1.3 billion, has a central bank of only 2,500, the smallest globally in terms of ratio of population to number of central bank employees. Over the last 3 years alone, Nigeria’s CBN staff strength has ballooned from 4,000 to nearly 8,000, a virtual 100% increase.
If size alone mattered, dinosaurs would still be ruling the wilds. The expansion in employee figures is no reflection of competence or ability. The best central banks in the world – Bank Negara Malaysia, Reserve Bank of Australia, the Bank of Israel and the Bank of Chile, are comparatively modest institutions in terms of size. What determines success above all else is the quality of leadership, institutional effectiveness and the professionalism and competence of staff – and their sheer morale that inspires their collective efforts.
From my experience, the best central monetary authorities are virtual knowledge institutions at the cutting-edge of technical competence and professionalism. They demonstrate a strong sense of collegiality, with a focused strategic intent and commitment to effectiveness and results. Whilst they are never subservient to the political class, they are resolutely committed to public accountability. They eschew secret, parochial agendas, while working for the common good. In a world of complex uncertainty – in a universe of entropic turbulence – mistakes are bound to happen. When they do occur, responsible central bankers own up and set out to make amends, knowing that perfection belongs only in the realm of the gods.
Governments must ensure that central are empowered to act in the wider public interest. But they in turn must act with responsibility. The lessons of recent experience make it clear that price stability can no longer be the sole objective of a central bank. Growth and employment also matter supremely, as does structural diversification. An independent and well-functioning central bank is a vital institution in a free society; it is critical to the flourishing of prosperous democracies.
As Janet Yellen takes over this month of January, we expect her to consolidate on the achievements of the past while repositioning the Fed for the challenges of the future — for a world in which America and the dollar may no longer be Number One. America’s greatness has been rooted in its free institutions — its commitment to the rule of law — and the creativity of its people and highly entrepreneurial mindset. We can look forward to yet another century of performance and grandeur on the part of the Fed and the men and women who run it.
Nigeria and America have world-historic vocations. We are both federal democracies. I believe the Fed and the Central Bank of Nigeria (CBN) can benefit from greater cooperation with each other in the years ahead. As far back as 1962, Emmett J. Rice, one of the pillars of the Fed, under sponsorship of USAID, was seconded to CBN to assist the then young organization in taking off. An influential African-American economist, the late Rice was the father of none other than Susan Rice, former UN Ambassador and President Obama’s current National Security Advisor.
As the American experience illustrates, successful central banks in our 21st century digital economy will have to be knowledge institutions at the cutting edge of best practices and professional competence. In our context, the CBN would need to reinvent itself as a powerhouse of research, analysis and knowledge that feeds into more effective policy while providing better advice to government at state and federal levels. Like the Fed, it would also need to take full account of regional economic realities and learn how to better calibrate monetary policies to reflect such diversity while expanding the possibility frontiers of welfare for all our people.
We need a CBN that is shorn of the crippling immobility of the civil service and that is dynamic and forward-looking. The CBN that I know has some of the brightest economic minds anywhere in the Nigerian public service. Such talent must be nurtured as its most vital resource. There is a lot of staff disgruntlement which needs to be addressed. The work environment has to be made more attractive in every respect. The apex banking institution must become a preferred employer attracting some of the best talent our country can offer. The organization has never had a strategic plan in all its over half-century of existence. It needs one badly.
Leadership remains the most crucial factor. Those who lead central banks must learn to communicate clearly. But they must not be mesmerized by their own penchant for received estuary English. They do not have to be Trappist monks, but it would help if they had their decorum. They must be deft enough to manage politicians whose instincts rarely transcend the calculus of immediate gain. But they must never lose sight of the fact that there is only one government, of which they are a part. The central bank is an independent institution purely by virtue of delegated authority. The best central bankers are those who have mastered the art of talking softly while wielding a big stick, as the ancient African proverb enjoins. The life-chances of millions of our people may well depend on it.