There’s no empirical data to support CBN’s new policy –Ozoh, development economist

A lecturer in the Department of Economics and Developmental Studies, Federal University in Ndufu-Alike, Ebonyi State, Prof Frank Ozoh, says the Central Bank of Nigeria (CBN) monetary policy is profoundly inordinate. In this interview with Channel TV Politics Today, monitored by Linus Aleke, the university don also dwells on other economic issues.

This is the second policy that the CBN will be rolling out in the past two weeks, what do you make of this new monetary policy?

The policy is highly and profoundly inordinate, given the environment under which we are operating, it is quite inordinate. I think that the CBN authority failed to do some empirical study of what should be the quantum of cash required to sustain some level of economic activities both in rural and urban communities. It is very critical, you must know it. It is just like they goofed in the printing of naira notes, they just completely goofed. It is not that it is not done, you will do it both in time, scope and nature.

Looking at the new policy of withdrawal limit critically, what do you think is wrong with it?

You are a Nigerian, you know what I am saying, the CPI, Consumer Price Index. It is the index that studies the prices of goods and services in the country. Now, you look at the primary activities that those people conduct, both in rural areas. As I was coming here, I asked a simple question the driver who brought me. I said, supposing I am sending my driver to travel by road, and in the cause of the journey, the vehicle breaks down, and he wants to repair it to proceed with his journey, how will he get the money required to fix the vehicle immediately, if there are no POS? Even if there is a POS, there may be a problem with the electricity supply and they will tell you that the machine is not charged because there was no electricity. Even in cities here, if you go to some of the gas stations, what do they tell you? Our POS is down and there is nothing we can do about it, don’t you have cash? Excuse me, how much is the price of fuel? So, this policy is completely anti-people, because the CBN Governor did not study the issue well. Before you come up with a policy, a lot of things have to be done first, just as the politicians are saying that he did not even look at the laws. Let me tell you, the thing is not as he thinks, human factors are not bulbs in the lamp holders connected to sockets, that once there is light, if you switch it on, it comes on and when you switch it off, it goes off. That is the way the CBN Governor is behaving, he does not even understand the rudiments of the policy. Monetary policy is an accommodating measure, it is not an autonomous measure. It is the finance side that is an autonomous measure. So, you accommodate the activities, you accommodate the excesses of the financial sector, and if there are budgetary deficits, you use this to accommodate them.

Most of my viewers are mathematically unlearned like myself, please can you break it down for us to understand, and how does this policy affect average citizens?

Supposed you are a woman in the village and you are into animal husbandry, and you want to sell one of your traditional goats because you need money to solve a problem. You take the goat to the market, and someone comes to price the goat, and the man agrees to buy the goat at N25,000, you put it. It is now time for payment, the man starts looking for a POS operator, whose own is working because of the charging of the machine, before the issue of network. You see the intrigues in the transaction, we are gradually going back to the barter system because you have to look for one who has POS.

It does look to me that the CBN wants to digitalise the platform of transactions which to me is a commendable step into the realm of the digital world

You are right, CBN can do that but empirically, and there is still work to be done before the implementation of this kind of policy. The problem is this, you must have what we call high-powered money which is the base money that supports other activities, whether you want to create credit or create money. Most of these activities will be based on fiduciary trusts. This digital money you are talking about, is not based on fiduciaries? What happened to the e-naira, do you know?

Cuts in…There was a crash, thank you. If you understand the tension of money in circulation, you will understand that there must be a backup

Central Bank Nigeria is issuing our money on fiat, there is no gold or dollar that you are backing it up with the quantum of money you are pushing into the system. So, when it crashes, everybody starts trembling. That is the same thing that happened to e-currency.

Where do we go from here?

What the CBN should do, if it can do it now, is to stop what it is currently doing, and find out, what the critical base money is required to supply to support the economic activities of the economy. What are the basics? There is a critical amount, just like the doctors will say, that human needs about four to five pints of blood for their body to function effectively. In the same way, the high-powered money needs a critical minimum base you will supply to support economic activities.

Are you saying that this thing was not done?

It was not, the CBN did not do any empirical study to benchmark some of these thresholds. Look at what the CPI is, and look at the transaction activities.

So if this policy continues till January, there will be a problem?

If he had consulted the National Assembly, maybe some of these things would have been done.

Are you saying it was a failure of consultation?

Of course, he thought that he has the powers. No, he does not have express power of expenditure. We have a budgetary system here, and he must comply with it. He must adhere to the budgetary system, otherwise, we will spend and print and spend the way we like, is that what the system should be? Now, he does not even know what is causing inflation in the country. The problem is that he blames everything on inflation, the policy of CBN is not going to cause inflation. Many of them in CBN is looking at inflationary factor, from the demand side, therefore, the quantum of money in circulation in their thinking must be curbed. But we know that inflation could also be caused by cost-push and demand-pull inflation. Now, if the demand-pull aspect is asymptomatic, in most cases, if you go by quantity, which is the quantum of money, you will be having problems, mostly when the problem is coming from the cost side. The apex bank needs to understudy the system very well before coming up with a policy.