The Governor of the Central Bank, Mr Lamido, recently announced plan to print more money if needed to help “save more ailing banks”. This echoes similar ideas that were proposed by certain members of the public during the now infamous naira crash early this year. Printing money is however always a bad idea. This is because printing money does nothing but increase the inflation rate and inflation is really really difficult to get under control. The number one role of the Central Bank is to ensure price stability which is typically defined as an inflation rate of around 2%. Its currently 11%. This idea of printing money combined with the recent big cut in the monetary policy rate is sure to raise inflation to new highs in the coming months. It might already be too late though. Studies have shown that inflation is largely determined by what people expect inflation to be, and with recent announcements by the CBN we are probably on our way there already.
Whereas I support the idea to seize and run the banks that were, according to reports, about to fail, this should not be at the cost of a higher inflation rate.Bank failures are indeed essential for the long run stability of financial markets as long they do not cause a bank run hence the insurance of deposits. I know the actual amount guaranteed by the NDIC is kind of ridiculous nowadays but that is a story for another day.
I guess in the end it borders on if we will prefer to loose money today or loose more money in the future.