How treasury bills work
Nigeria: Stop Treasury Bills Scam
on January 05, 2015 at 12:11 am in Rational Perspectives
By Henry Boyo
In last week’s article we discussed why inclusive economic growth is made unattainable in Nigeria by the process, which the Central Bank adopts for reducing money supply in order to restrain inflation.
It is clear that whenever the Central Bank sells Treasury bills to control money supply, it is unwittingly forced, inspite of the attendant oppressive rates of interest, to borrow funds that will simply be kept idle; ironically, in a manner that is reminiscent of a man who cuts his nose to spite his face, the same CBN is also actually responsible for instigating the inordinately high interest rates attached to government’s huge domestic borrowings!
On the 19th of December 2014, the CBN auctioned government Treasury bills and thereby borrowed N 195bn from the open market at interest rates which range from 9-16% for the 90 to 360 days debt instruments respectively. Incidentally barely a week or so after this auction, as an admission of failure to reduce Naira surplus with existing controls, measures, the CBN also gave notice that it would borrow another tranche of N 1200bn with possibly the same high interest rates also applicable before the 30th March 2015.
Mr Godwin Emefiele answering questions during his screening by the Senate for Central Bank Governorship in Abuja on Wednesday
True to its words, last week, the CBN advertised its ‘Bid Notice’ to auction T/bills and borrow N 160bn on the 8 th of January 2015. Indeed If CBN’s strategy for reducing surplus Naira is projected along this pattern of borrowing for 2015, we may sadly need to pay over N 600bn from our already lean treasury, to primarily the commercial banks, for the joy of borrowing some of the surplus funds which were largely created by CBN’s creation and substitution of Naira values for distributable dollar denominated revenue; clearly no real development and economic growth can be predicated on such a reckless strategy.
Indeed, failure of this strategy is best amplified by the deepening poverty which has become accentuated nationwide, despite the fortuitous accumulation of bountiful reserves from a bullish crude oil market which persisted for over 5 years.
Thus, we have actually become poorer when we were stupendously richer and not even the “embarrassing” availability of systemic surplus Naira could redeem our economy! It would therefore be foolhardily to continue to adopt the same arrangements which have distorted our economic fortunes for so long and suddenly expect that our social infrastructure and welfare would rapidly improve, especially when it is also clear that our Small and Medium Enterprises which are, generally regarded as the prime engines of growth and job creation, are incapacitated socially antagonistic strategy that ensures that SMES forever remain in a lop sided competition with the CBN and the Debt Management Office for the available ‘surplus’ funds in the market.
The question then, is why does CBN and the government persist in this macabre emasculation of our economy? It is difficult to suggest that our economic management team is ignorant of the cause of the clear failure of its policies to instigate economic growth that creates increasing jobs! Surely, the evidence of failure of this strategy is clearly mirrored in the rising rate of unemployment and our stubbornly famished industrial landscape, in which consumer demand is stringently capped by an average inflation rate of about 8% in recent years.
Sadly, the way things are, we may never witness below 3% best practice inflation and monetary policy rates that are characteristic of economies where genuine economic growth and vastly enhanced social welfare exist. Sadly, however our government has consistently, inexplicably, sustained an obtuse liquidity management strategy that will ultimately propel our economy into a tail spin with considerable adverse consequences for everyone.
Furthermore, the National Assembly appears to have readily acquiesced to this annual rape of our economy with CBN’s Treasury bills borrowings, which inevitably makes it difficult and expensive for SMES to access funds, but nonetheless immorally and inequitably subsidises bank profits with over N600bn interest payments on borrowed funds that will inexplicably be quarantined as idle deposits by CBN! Regrettably, the farcical complexion of this strategy, is that the trillions of Naira surplus funds borrowed and quarantined by CBN actually exist simultaneously with the need for additional medium and long term loans at equally oppressive interest rates to fund annual budget deficits! Inexplicably, the government and the National Assembly appear determined to sustain this odd process which continuously throws up a handful of very rich Nigerians while increasingly more than 80% of our fellow countrymen still live on the proverbial poverty benchmark of U$D2/day.
Fortunately, we are in a democracy, and it is also the season of political campaigns leading to the eventual elections in February. Consequently, the parties that seek our votes must be asked to state their position on CBN’s “Treasury Bills scam” in very clear terms i.e. whether or not they would stand on the side of the people quickly stopping the blatant rape of our patrimony with CBN’s failed attempts to reduce excess Naira supply by unwittingly borrowing trillions of Naira that will simply be kept idle at a time the real sector remains starved of funds! No election candidate or political party can be trusted with the management of public funds if they condone the enrichment of a small minority of Nigerians with payment of over N600bn interest charges on government debts, which are not applied to redressing the condition of over 160 million Nigerians who still wallow in poverty.
Unfortunately, we are all helpless victims of this brazen scam and, so long as any government sustains such inequitable and oppressive strategy for managing money supply there is clearly no possibility that Nigerians will ever be redeemed from this economic bondage; fortunately, politicians and critics cannot suggest that the required public declaration of their opposition to the Treasury Bills scam has any ethnic, religious, political or cabalistic colourations.
The simple question, therefore, is whether your political party will stop or sustain this apparent betrayal of the trust Nigerians on this matter of managing public funds wisely.
Consequently Nigerians should raise their voices in support of any campaign to stop CBN’s economic malady. Everyone can let their voice be heard on this campaign by simply tweeting your name and telephone number with the slogan “I support the NSTBS campaign” to the twitter handle @Lesleba #NIGERIA STOP TREASURY BILLS SCAM (NSTBS).
Similarly, the same message can be sent as text messages on mobile phones to 08052201997.
Please be assured that if the size of participants is sufficiently impressive, a compiled summary of respondents will be made available to frontline political parties as a guide to what kind of change most Nigerians want.
The future of Nigerians yet unborn is at stake, this is no time to sit on the fence!Source: www.vanguardngr.com