The Senate hearing for the confirmation of Dr. Yemi Cardoso as the new Governor of the Central Bank of Nigeria (CBN) was held today, and it was not without some heated moments.
One of the most notable ones came from Senator Ned Nwoko, who represents Delta North Senatorial District.
Senator Nwoko, who is also a lawyer and a businessman, raised some issues that he said were related to neo-colonialism and economic independence in Africa.
He asked Dr Cardoso if he would be willing to consider returning Nigeria’s foreign reserves to the country and allowing the commercial banks to manage them, instead of keeping them in foreign countries that he claimed were influencing Nigeria’s policies. This is also referred to as domestic custodianship of foreign reserves.
He also asked if Dr Cardoso would support a policy to have a common currency in Africa, as a way of strengthening the continent’s economic integration and reducing its reliance on the US dollar.
Here is the full transcript of Senator Nwoko’s questions:
- “I am concerned about neo colonialism in Africa, I am concerned about continuously having our foreign reserves in those countries that are quietly determining what happens in Nigeria.”
- “We have foreign reserves in America those are the French colonies or countries that have foreign reserves in France.
- “I’m going to ask you this because we really need to start looking inwards in Africa, how that we generate, how do we grow our economies, we have all the resources we have all that we need to make a difference in the world” sic
- But until we stop relying on huge foreign exchanges we are not going to achieve that, so I’m going to ask, will you be willing to consider returning our foreign reserves to Nigeria for instance and allow our commercial banks to manage the foreign reserves?”
He then went on to grill the CBN Governor if he supports a single currency for Africa, suggesting that this could eliminate high dependence on the US dollar.
- “That is one question secondly I would want to know whether at any point you will be supportive of a policy to have a common currency in Africa it is something that you will be willing to supportive of.
- Because if we have a common currency we can do a lot better instead of having an economy linked to the dollar. We should be more economically independent instead of our reliance on American US dollars.”
Dr. Yemi Cardoso, a distinguished economist and former Finance Minister, was not anticipated to verbally address the inquiry posed, as the Senate President favored receiving written responses for questions necessitating detailed insights.
He suggested that the incoming Central Bank Governor had not yet fully assumed his role and might therefore be ill-equipped to provide comprehensive answers at this time. Ultimately, the Senate ratified Dr. Cardoso’s appointment as Governor of the Central Bank of Nigeria.
About domestic custodianship of foreign reserves
Under this arrangement, the central bank of the country in question would entrust the management of its foreign currency reserves to domestic financial institutions rather than international ones.
This represents a shift from the conventional practice of using foreign banks—often based in financially stable countries like the United States or Switzerland—as custodians of foreign reserves.
It also comes with a string of advantages and disadvantages
- The country gains greater control over its foreign reserves, enhancing its economic sovereignty.
- It might be more cost-effective as local banks may charge lower custodian fees compared to international banks.
- It can serve as an injection of funds into the local banking system, possibly improving its stability and capability.
- Faster and more streamlined access to reserves in case of an emergency.
- Local banks might not have the experience or infrastructure to manage foreign reserves effectively, potentially putting those reserves at risk.
- Domestic custodianship might expose the reserves to local political interference, which could be risky.
- Having reserves in a single or less diverse currency may expose the country to currency risk, particularly if that currency loses value.
- Local banks might not offer the same sort of investment opportunities for these reserves, leading to lower yields.
- This could lead to a loss of confidence from international investors or partners who see the move as a lack of trust in global financial institutions.