By Prof Uche Uwaleke
During a recent academic study tour of key financial institutions in Malaysia with some of my PhD students from Nasarawa State University, Keffi, I had the opportunity to visit Bank Negara Malaysia (BNM), the Central Bank of Malaysia, where senior officials made presentations on the Bank’s mandate and institutional framework. What particularly caught my attention was the positioning of sustainable economic growth as the ultimate objective, with monetary stability serving as an important means towards achieving that broader objective. I was equally struck by the emphasis placed on enhancing the financial well-being of households and businesses as one of the Bank’s strategic thrusts. These aspects of the Malaysian framework prompted me to reflect on what Nigeria might learn from a central banking model that appears to place monetary stability within a broader developmental conception of economic policy.
The Malaysian experience therefore offers Nigeria an opportunity to revisit a fundamental question about the role of a central bank in a developing economy: should monetary stability be regarded essentially as an end in itself, or as one of the instruments through which the broader objective of sustainable economic growth and improved economic welfare can be achieved? The question is not whether monetary stability matters; it unquestionably does, because stable prices are indispensable to investment, savings, production and household welfare. The more important question is whether a developing economy such as Nigeria should expect its central bank to remain largely focused on monetary stability while leaving the pursuit of sustainable economic growth almost entirely to the fiscal authority.
It has been argued that the real issue for Nigeria is not the formal scope of the Central Bank of Nigeria’s mandate but the quality of coordination between monetary and fiscal authorities. There is considerable merit in this argument. Monetary policy does not operate in isolation from fiscal policy, and every significant monetary-policy decision has implications for government debt-servicing costs, business financing, household borrowing, investment and productive capacity. Fiscal policy, in turn, affects inflation, liquidity conditions, exchange rates and the effectiveness of monetary policy. It is therefore difficult to envisage a successful economic policy framework in which the monetary and fiscal authorities operate as though they inhabit entirely separate economic universes.
However, while coordination is necessary, I do not believe it is sufficient. The critical question is how such coordination should be institutionalized and sustained beyond the personalities or policy preferences of particular administrations and central-bank managements. Coordination is essentially a process, whereas a statutory mandate establishes an institutional obligation. If sustainable economic growth is not expressly recognized within the legal framework governing the CBN, there is a risk that successive managements of the Bank will concentrate overwhelmingly on those objectives that are most clearly articulated in the law and regard broader developmental concerns as secondary or discretionary. This is why I believe that an amendment to the CBN Act of 2007 deserves serious consideration.
I submit that the CBN Act should explicitly recognize sustainable economic growth as an overarching objective, while retaining monetary and financial stability as indispensable conditions for achieving it. Such an amendment would not mean transforming the CBN into a development agency, asking it to substitute for the fiscal authority, or giving it a licence to sacrifice price stability whenever growth becomes politically desirable.
Rather, it would establish a statutory framework within which the CBN is expected to consider how its monetary and financial policies can contribute to productive capacity, investment, employment and the financial well-being of households and businesses. There is an important distinction between giving the CBN responsibility for development and giving it a responsibility to contribute to development; it is the latter that I am advocating.
The experience of the United States is instructive in this regard. The Federal Reserve operates under a dual mandate that includes price stability and maximum employment, demonstrating that recognition of broader economic outcomes within a central bank’s statutory framework does not necessarily undermine monetary-policy credibility or central-bank independence. If a highly developed economy with deep and sophisticated financial markets can accommodate broader economic objectives within its central-bank framework, there is little reason to assume that a developing economy such as Nigeria must necessarily confine its central bank to an exceptionally narrow conception of its responsibilities.
Indeed, given Nigeria’s structural challenges, including inadequate productive capacity, limited access to finance, weak industrialization and high unemployment, the case for a framework that recognizes the developmental implications of monetary and financial policy may be even stronger.
Another argument that deserves serious consideration is Nigeria’s recent experience with development finance under the previous CBN administration. The Bank became deeply involved in several intervention programmes designed to support agriculture, manufacturing and other sectors of the economy, and some of these interventions understandably generated concerns about the appropriate boundaries between monetary policy, fiscal policy and credit allocation.
Questions were also raised about their scale, implementation and institutional consequences. Those concerns should not be dismissed, but neither should we draw the conclusion that developmental central banking has no legitimate place in a developing economy. The fact that a policy instrument can be abused does not invalidate the underlying principle. The appropriate lesson is that development-oriented interventions must operate within clear rules, transparency, accountability, institutional limits and proper coordination with fiscal policy.
Nigeria should therefore avoid moving from one extreme to another: from a CBN that attempts to do too much to one that does too little. The challenge is to identify the institutional middle ground in which the central bank remains credible and disciplined in preserving monetary and financial stability while recognizing the structural realities of a developing economy. Such a central bank would not indiscriminately allocate credit, finance government programmes or substitute for fiscal policy, but neither would it regard the cost and availability of finance to productive enterprises as entirely outside its legitimate concerns.
The Malaysian example also invites reflection on Nigeria’s financial regulatory architecture. It has been suggested that Malaysia and Nigeria both operate broadly fragmented financial regulatory systems, but the two arrangements are not comparable in degree. Malaysia’s principal financial-sector regulatory architecture is considerably more concentrated, with Bank Negara Malaysia and the Securities Commission playing the central regulatory roles, whereas Nigeria has a considerably more dispersed structure involving institutions such as the CBN, Securities and Exchange Commission, NDIC, NAICOM and PENCOM. This difference has implications for regulatory coordination, policy coherence and the transmission of financial policy across the economy.
The lesson, however, is not that Nigeria should simply reproduce Malaysia’s institutional structure, but that we should examine carefully what institutional arrangements enable monetary stability, financial stability and developmental objectives to coexist without compromising central-bank credibility.
There is also a compelling argument that Nigeria should not make development dependent upon the discretion of the CBN. Development should not depend on whether a particular governor happens to favour interventionist policies, nor should the central bank become the institution responsible for financing every developmental aspiration of government. I agree with this concern, but I do not see it as an argument against a broader statutory mandate.
On the contrary, it strengthens the case for a clearer institutional framework. The objective should be to create an ecosystem in which the fiscal authority remains primarily responsible for fiscal policy, public investment and broader development strategy, while the monetary authority performs its core functions with credibility and independence and contributes, within clearly defined boundaries, to the broader developmental objective.
The CBN does not need to do everything, but it should be expected to contribute to the right things. This distinction is particularly important when considering access to affordable credit. The monetary-policy framework and financial-sector regulations established by the CBN have significant implications for whether businesses can obtain financing at costs compatible with productive investment. If productive enterprises are consistently confronted with prohibitively expensive credit, while monetary and financial conditions systematically favour financial intermediation over productive investment, the consequences extend beyond conventional monetary indicators to investment, employment, production and economic growth.
This does not mean that the CBN should arbitrarily force banks to lend cheaply or undermine the principles of sound banking; it means that the Bank should be encouraged, within the limits of monetary and financial stability, to consider how its policies and regulatory framework can facilitate efficient financial intermediation and improve access to finance for productive sectors.
Some may argue that this approach risks undermining central-bank independence. I would argue the opposite. Independence and coordination are not mutually exclusive. A central bank can retain operational independence while engaging in structured, transparent and rules-based coordination with the fiscal authority. Indeed, genuine independence may be strengthened when the respective responsibilities of the monetary and fiscal authorities are clearly defined and when coordination takes place within an established institutional framework rather than through informal political pressure. The purpose of coordination is not for government to dictate monetary policy or for the CBN to dictate fiscal policy, but to ensure that the two arms of economic policy do not systematically work at cross-purposes.
It goes without saying that Nigeria should move beyond the simplistic choice between an interventionist central bank and a narrowly conservative one. What is needed is an enabling central bank: one that remains firmly committed to price and financial stability while recognizing that monetary stability is also a condition for sustainable investment, production, employment and economic transformation.
Such a central bank would work with the fiscal authority without becoming subordinate to it, support productive sectors without becoming a permanent allocator of credit, and facilitate financial inclusion without compromising the soundness of the financial system. Most importantly, it would operate within a statutory framework that reflects the realities of a developing economy.
The debate, therefore, should not be reduced to whether the CBN should have a narrow or broad mandate. The more important question is what kind of institutional architecture Nigeria requires to achieve both monetary credibility and sustainable economic transformation. Price stability remains indispensable, but price stability alone does not build factories, create productive jobs, expand businesses, improve household welfare or transform an economy. Those outcomes require fiscal policy, industrial policy, infrastructure, human capital, financial-sector development and effective institutions, with monetary policy playing an important complementary role.
For this reason, I believe Nigeria should seriously consider amending the CBN Act of 2007 to recognize sustainable economic growth as the ultimate goal, while preserving monetary and financial stability and protecting the operational independence of the Bank. Properly designed, such an amendment would not be a licence for reckless intervention; rather, it would provide the foundation for a more disciplined form of developmental central banking in which the CBN’s role is clearly defined, its independence protected, and the developmental implications of its monetary and financial policies explicitly acknowledged.
The Malaysian experience does not tell Nigeria to become Malaysia. It tells us something more important: institutional choices matter. Nigeria must therefore design institutions that respond to its own economic realities while learning from countries that have demonstrated the possibility of combining monetary credibility with developmental ambition. The objective should not be to make the CBN more powerful, but to make Nigeria’s economic-policy architecture more coherent, coordinated and capable of delivering sustainable and inclusive growth. That, in my view, is the more consequential lesson that the Malaysian experience offers Nigeria.
Prof Uche Uwaleke is the Director of the Nasarawa State University Institute of Capital Market Studies and President of the Capital Market Academics of Nigeria.
