Discussing CBN’s Policy Guides from the Results of Other Nations
In the discuss to understand the global conditions which will likely be informing MPC and the CBN’s approach to its mandate?
Watch this 13 minutes video which undoubtedly is it’s very relevant to Nigeria. These are insightful factual monetary policies and intervention tools applications from Brazil, Chile and South Africa; and so much more.
Points to note from this video
One major takeaway here is the fact that these guys want capital transfers to move faster and cheaper but won’t admit how well crypto is primed for this. But here’s why it seems so.
Brazil’s central bank for example has done something quite remarkable with Pix which has done more than $700 billion in instant payments in just over 3 years with no down time. Free for consumers, really cheap for businesses. It’s now exporting that into Latin America and Europe. Brazilian travellers can pay in their local currency on holiday and it gets settled in the local currency, USD or crypto. They also do P2P, P2G, B2B and B2G.
Then there’s Singapore’s Nexus which is using settlement gateways to connect local instant payment systems in Europe and Asia for near instant (seconds) cross border payments.
Trouble is, with increasingly volatile macros, the risks of instant payments and rapid flows are greatest for emerging markets.
A cursory takeaway is the level of capital flows going into the US. IMF actually states about a third of global capital now flows to the US. This feeds into the next point.
Interest rate differentials more than anything else drive capital flows. The higher it is compared to US the more flows you get.
It’s important point to note is the difference between MPR and Bond rates no matter how closely related they might be. Nigeria tend to have higher bond and TBills rate without necessarily hiking the MPR, no surprises we are seeing Tbills at 19%.
On Interventions.
Interventions come when there’s dysfunctionality. You go in too much or unnecessarily creates problem. Also, the SARB Gov’s point on the difference between pricing and dysfunctionality. In the context of BDC price discovery dysfunction, it’s therefore safe to say that not liking the price/rate doesn’t equate to dysfunctionality.
Cardoso was trying to communicate better when he said the CBN doesn’t have the intention to intervene. In other words, CBN will only intervene when it becomes a necessary action.
Understanding Macro-prudential policies
Macro prudential policy is the stuff that a central bank implements across the board for financial stability and to prevent shocks which can leak into other financial institutions.
Also read: The Nigerian Expatriate Employment Levy and Policy Review
So it would be things like increasing CRR to ensure banks have enough cushion in the reserve if there’s an issue. A big move observed during Governor Chukwuma Soludo’s term as the Nigeria’s Apex bank’s governor.
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