The political economy of central banking in Nigeria: a resource dependence perspective

The economic importance of a robust central banking system has continued to attract considerable attention in the literature. For centuries, central banks have evolved in their assigned tasks, their relationship to the state, their interaction with financial market participants, and their internal management and decision-making processes. While a strand of literature suggests that the performance of central banks reflects its degree of independence, an important feature in the literature is the inconsistent findings reported between developed and developing economies. In contributing to the debate, this chapter engages Africa’s largest economy (Nigeria) to explore the link between the independence of the Central Bank of Nigeria (CBN) and the country’s political institution (i.e. the role of political elites). In doing this, the chapter employs the resource dependence notion to understand in what ways the external resources of organisations (political influence) affect the operational effectiveness of the CBN. This chapter emphasises that the capacity of CBN to support economic development in a developing economy is maximised when monetary and fiscal policies are shielded from interference of political elites that typically seek contradictory objectives. To minimise the impact of political institutions on CBN’s independence, this chapter articulates two propositions. First, the CBN should implement an incentive approach for its executives that is characterised by specific performance targets. Second, the appointment of CBN directors should rely on criteria that are different from civil service regulations in the country.