News Column

The Treasury Bill Scam

August 20, 2014



Perhaps the National Assembly needs to perform its oversight function in this matter by demanding for cogent reasons why the apex bank's borrowing attracts such a high interest rate when risk-free loans in other developing economies attract just less than 4 percent.

Recently, the media was awash with reports that the Central Bank of Nigeria borrowed N195bn with treasury bills on August 6. Earlier, precisely between July 9th and 23rd the apex bank had reportedly borrowed N70bn and N134bn respectively using treasury bills while late in June, the regulatory bank borrowed over N134bn with the country's treasury bills. What this implies is that within six weeks the country's loan profile from treasury bills rose to about N535bn.

It is instructive to note that the over N535bn loan profile of the CBN over a period of six weeks may not be used to improve infrastructure or stimulate the industrial sector because such application of funds would re- inject more cash into the system and increase the pressure and consequences of the already surplus cash in the money market. At least that is what the monetary authorities want Nigerians to believe. In other words, the CBN borrowing with the treasury bills is aimed at taming the monstrous ghost of excess liquidity in the economy, which obviously is generated by the apex bank's monetary policy.

To restrain the inflationary trend caused by reducing the excess liquidity which is as a result of huge monthly naira allocation to the three tiers of government, the apex bank borrows back and warehouses some of the naira surplus as idle cash in banks vaults at high interest rates. Therefore, the CBN would ultimately offer to borrow and pay double digits interest rates on government's treasury bills so as to encourage the commercial banks to part with some of the excess cash in their custody. Obviously, the commercial banks do not require any prompting from the apex bank as it is unusual to earn such high interest rate offered by CBN for what monetary experts believe are sovereign free risk investments.

It is therefore not surprising to us that the commercial banks would continue to declare huge profits while the real sector is denied growth through high interest offered by the banks. The consequences of this bad monetary policy are the high rate of unemployment and poor social welfare.

We agree with the Chairman of the Chartered Institute of Taxation of Nigeria, Mike Chidolue that "government should consider a complimentary policy of free returns on treasury bills and bonds" as this would stimulate "free flow of bank credit so that the private sector could gain better traction than it presently does". Only recently the Edo state Governor Adams Oshiomhole stated that " the current monetary strategy would discourage employers of labour from setting up businesses because interest rates are high... how can you create jobs by pricing money out of the reach of investors in the name of achieving market stability?"

Indeed, this Newspaper wonders why government's risk -free loans should attract interest rate as high as 15 percent when similar facilities in other developed economies of the world cost less than 4 percent. The European Central Bank has successfully managed the challenges of excess liquidity by ordering European banks to henceforth pay the ECB an interest rate of 0.1percent on their surplus cash. So why is the CBN not willing to apply the same strategy to the country's monetary situation?

Perhaps the National Assembly needs to perform its oversight function in this matter by demanding for cogent reasons why the apex bank's borrowing attracts such a high interest rate when risk-free loans in other developing economies attract just less than 4 percent.


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Source: AllAfrica


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