The Central Bank of Nigeria simply refer to a central monetary authority or an apex financial institution within the entire financial structure promoting monetary stability and a sound financial system in Nigeria.
The central bank of Nigeria was established in 1958 and the bank began operating on the 1st of July, 1959. It happened due to many reasons. The first CBN governor was Roy Pentelow Fenton, who was appointed on 24th of July 1958 and remained in the position till 1963.
The most important function of the central bank of Nigeria is to issue the Nigerian naira, maintains foreign currency reserves, and charged with maintaining monetary stability.
Functions of Central Bank of Nigeria
The mandate of the Central Bank of Nigeria (CBN) is derived from the 1958 Act of Parliament, as amended in 1991, 1993,1997,1998,1999 and 2007. The CBN Act of 2007 of the Federal Republic of Nigeria charges the Bank with the overall control and administration of the monetary and financial sector policies of the Federal Government.
The core functions of Central Bank of Nigeria are as follows:
- ensure monetary and price stability;
- issue legal tender currency in Nigeria;
- maintain external reserves to safeguard the international value of the legal tender currency;
- promote a sound financial system in Nigeria; and
- act as Banker and provide economic and financial advice to the Federal Government.
The Central Bank of Nigeria (CBN) is charged with the responsibility of administering the Banks and Other Financial Institutions (BOFI) Act (1991) as amended, with the sole aim of ensuring high standards of banking practice and financial stability through its surveillance activities, as well as the promotion of an efficient payment system.
In addition to the core functions of Central Bank of Nigeria, the CBN has over the years performed some major developmental functions, focused on all the key sectors of the Nigerian economy (financial, agricultural and industrial sectors). Overall, these mandates are carried out by the Bank through its various structure and departments. Here are the core functions of Central Bank of Nigeria:
- CBN sets interest rates
- Banker to other financial institutions
- Adviser to the government
- Supervise other banks
- Printing of money
- Debt Management
- Regulation of Naira’s value
- Making of rules that guide commercial banks
- Maintenance of Nigeria’s external reserves
- Formulation of monetary policies
- Provision of loan to government
- Setting of interest rates
- Serve as foreign exchange management
1. CBN sets interest rates
As a financial institution, another function of the CBN is also to set a certain amount as interest on any citizen account.
With this, commercial banks in the country must follow the instructions or directives given by the CBN before adding any interest to the amount of money borrowed by an indigene of the country
2. Banker to other financial institutions
Central bank keeps account for commercial banks as well as other financial institutions operating within the country.
3. Adviser to the government
The Central bank plays the role of financial advisers to the federal government in the following capacities; Provides foreign exchange for payment of debts or purchase of foreign goods.
Accepts deposits from the government. Offers financial information and counsel to the government on economic, monetary and fiscal matters. Maintains the account of the federal government.
4. Supervise other banks
The central bank controls and supervises the operations of other banks through licensing, inspection of bank accounts, bank mergers, etc.
5. Printing of money
This is the first main function of the central bank is the printing of Nigeria’s currency. Not only to print but to also ensure that the money is evenly distributed throughout the country.
They ensure that the country must at least have printed currency at any time. Once this key responsibility is met, it gives room for the CBN to perform other functions
6. Debt Management
The Central bank manages domestic debt under strict compliance to instructions from the federal ministry of finance. On the domestic front, the Bank advises the Federal Government as to the timing and size of new debt instruments, advertises for public subscription to new issues, redeems matured stocks, pays interest and principal as and when due, collects proceeds of issues for and on behalf of the Federal Government, and sensitises the Government on the
7. Regulation of Naira’s value
Another function of the Central Bank is to ensure that there’s a normal value of the country’s currency when compared to foreign currencies. This can be achieved by making sure that the policies, environment and business or monetary atmosphere are favorable.
8. Making of rules that guide commercial banks
It’s the duty of central bank to ensure that there is normality when it comes to banking system in Nigeria. The CBN makes sure that citizens have total trust in the country’s banking system by creating rules and regulations to guide the activities of all commercial banks in the country.
9. Maintenance of Nigeria’s external reserves
Another function of the Central Bank of Nigeria is to safeguard the international value of the legal tender currency, the CBN is actively involved in the management of the country’s debt and foreign exchange.
10. Formulation of monetary policies
A primary function of central bank of Nigeria with respect to monetary policy making guides the influx of money into the country. This requires a very high level of concentration from the management and decision-making segment of the bank.
This is because too much of money in circulation is not the best for any economy as it leads to deflation while shortage of money leads to inflation. Officials in charge of policy making must be aware of the country’s economic situation. They have to be intelligent to make brilliant decisions.
11. Provision of loan to government
Should the government run out of cash while performing its duty, the central bank will give out loan to the government so as to conclude its project and work for the country.
12. Setting of interest rates
As a financial institution, it is also their primary duty to set certain amount as interest on any citizen account. With this, commercial banks in the country must follow the instructions or directive given by the central bank of Nigeria before adding any interest to the amount of money borrowed by an indigene of the country.
13. Serve as foreign exchange management
Another important area when talking about the functions of central bank of Nigeria is the acquisition and deployment of foreign exchange resources in order to reduce the destabilizing effects of short-term capital flows in the economy.
The CBN monitors the use of scarce foreign exchange resources to ensure that foreign exchange disbursements and utilization are in line with economic priorities and within the annual foreign exchange budget in order to ensure available balance of payments position as well as stability of the Naira.
