The Senate is working to reduce the period of “Ways and Means” repayment from one year to three months.
This is just as its bill is seeking to ensure that currency is only withdrawn from circulation after one year of consistent notice.
This followed the passage of the second reading of a bill sponsored by Senator Mukhail Adetokunbo Abiru (APC, Lagos East) and cosponsored by 41 others.
The discussions on the bill for an Act to amend the CBN Act No 7 of 2007 to further empower the apex bank to carry out its principal objectives in line with section 2 of the Act, and other related matters, the lawmakers sought to limit the temporary advances to the federal government by the CBN.
In his lead debate, Abiru, who is the chairman of the Senate Committee on Banking, Insurance and Other Financial Institutions, said the current CBN Act, empowers the apex bank to grant temporary advances to the federal government to finance unexpected shortfall in budget revenue.
But he argued that the advance is not to exceed five percent of the previous year’s actual revenue of the federal government and it is to be paid back at the end of the financial year in which it was granted.
But Abiru, who said such is causing inflation if such releases exceeded 10 percent of the government’s revenue, insisted that the new law being proposed should address such areas.
“In order to firm up this provision and prevent a repeat of the recent experience in which the Bank’s Ways and Means have fueled inflation and significantly distorted economic management, the Bill proposes the following: any such direct advance to the Government should not exceed 10% of average government actual revenues during the preceding three years.
“For the purpose of determining the government’s actual government revenue, proceeds from asset sales shall be excluded to avoid capturing revenues from exceptional items.
“Such temporary loans should be repaid in full within three months from the date it is made available.
“This is consistent with global practice. The current provision which stipulates before the end of the fiscal year is prone to abuse as it creates a window for the government to obtain overdrafts from the Bank in January and wait until December to make repayment.
“In order to minimize default risk, any sum which becomes outstanding at the end of the expiration of the credit period should be held against and recovered from the proportion of the Federal Government’s FAAC Receipts,” Abiru said.
On the issuance of new legal tender to replace existing ones, Abiru said the current Act gives the Bank the power to restructure the domestic currency and issue new legal tender but has not specified a time frame within which the old currency ceases to be a legal tender.
“This lacuna contributed to the confusion that characterized the last currency redesign exercise and the resultant huge economic loss to the nation until the intervention of the Supreme Court.
“In order to prevent a repeat of this experience and consistent with global practice, the Bill proposes that before the Bank can replace an old legal tender with a new one under any restructuring, redesigning, redenomination or any similar arrangement.
Speaking further, Abiru proposed that the Bank should give reasonable notice of at least one (1) calendar year of its intention to replace the existing legal tender.
“The entire programme should last at least two years from the date of the announcement of its intention. Throughout the duration of the programme, both the old and new currency notes and coins are expected to serve as legal tender simultaneously,” Abiru said, adding that the withdrawal of the old legal tender should be carried out in phases and in a manner that does not cause any distortion to economic activities.
“The bank should be in possession of sufficient new currency (not less than 70 percent. of the old stock of currency to be withdrawn) before embarking on such a programme,” he said
