Rethinking the CBN’s Mandate: Lessons from Malaysia for Nigeria

During a recent academic study tour with PhD students from Nasarawa State University, Keffi, I had the chance to visit Bank Negara Malaysia (BNM), the Central Bank of Malaysia. Senior officials at BNM emphasized sustainable economic growth as their ultimate objective, while monetary stability served as an important means to achieve that broader goal. This inspired me to consider what Nigeria might learn from a central banking model that integrates monetary stability within a developmental economic policy framework.

The Malaysian experience suggests Nigeria should reassess the role of its central bank: should monetary stability be the sole focus, or should it also contribute to sustainable economic growth and improved economic welfare? Of course, monetary stability is crucial for investment, savings, production, and household welfare. However, the bigger question is whether a developing economy like Nigeria should entrust the pursuit of sustainable economic growth primarily to the fiscal authority, while central bank remains narrowly focused on monetary stability.

Monetary and fiscal policies are deeply interconnected; every monetary policy decision impacts government debt-servicing costs, business financing, household borrowing, investment, and productive capacity. Similarly, fiscal policy influences inflation, liquidity conditions, exchange rates, and the effectiveness of monetary policy. Therefore, a successful economic policy framework requires coordination between monetary and fiscal authorities, but simply having coordination is not enough.

What is key is how such coordination should be institutionalized and sustained beyond the influence of individual administrations and central bank leaders. For this coordination to be effective, Nigeria needs to explicitly recognize sustainable economic growth as an overarching objective within the Central Bank of Nigeria's (CBN) legal framework.

This amendment would not transform the CBN into a development agency or allow it to override fiscal policy, but rather establish a statutory framework where the CBN considers how its monetary and financial policies can bolster productive capacity, investment, employment, and the financial well-being of households and businesses.

This approach strikes a balance between giving the CBN a responsibility to contribute to development, rather than transforming it into a development agency. The US Federal Reserve, with its dual mandate of price stability and maximum employment, demonstrates that integrating broader economic outcomes into a central bank's mandate does not threaten its credibility or independence.

Therefore, with Nigeria's structural challenges—weak productive capacity, limited access to finance, weak industrialization, and high unemployment—a framework acknowledging the developmental implications of monetary and financial policy may be more appropriate.

Even though a policy instrument can be misused, this does not invalidate the principle. The United States has successfully navigated developmental central banking, showing that a developing economy like Nigeria does not have to confine its central bank to an overly narrow role. Nigeria must therefore reassess its central banking framework to ensure it aligns with its developmental needs.