A country’s banking system without a Central Bank at the helm of affairs is analogous to a human body without a head. So, what is the Central bank and the functions of the Central Bank of Nigeria (CBN)?
It is the main government-controlled bank in Nigeria and it is responsible for overseeing the country’s financial affairs including establishing key interest rates, issuing currency, regulating commercial banks, and managing the country’s foreign exchange rate.
Central banks in each country have the primary responsibility of promoting the rapid development of banking facilities. as well as making sufficient funds available to finance development programs in agriculture, trade, and transportation as well as industry, and to establish specialized financial institutions for this purpose.
The Central Bank of Nigeria (CBN) was established by the Central Bank of Nigeria Act of 1958 and began operations on July 1, 1959.
Functions Of CBN
As the enforcement agency for the Banks and Other Financial Institutions Act, the Central Bank of Nigeria is charged with the only mission of maintaining high standards of banking practice and financial stability via its monitoring operations. as well as the promotion of an efficient payment system.
Over the years, the Central Bank of Nigeria (CBN) has carried out several significant developmental tasks. in addition to its basic responsibilities, with a particular emphasis on all important sectors of the Nigerian economy (financial, agricultural, and industrial sectors).
Overall, the Bank accomplishes these responsibilities via the many divisions that make up the organization.
Exchange Rate Maintenance
A Central Bank’s primary function is to maintain the external value of the home currency stable. In order to sustain and promote a country’s international commerce, as well as to stimulate the amount of foreign investment, both of which are essential for increasing the pace of economic development, especially in emerging nations, a stable exchange rate is needed.
A central bank is always prepared to purchase and sell foreign currencies at the rates established by the bank. in order to maintain the stability of the exchange rate.
However, if the country’s cost-price situation and balance-of-payments position change significantly, the old exchange rate may have to be changed.
Developmental Functions Of CBN
The primary responsibility of central banks in countries is to facilitate the rapid expansion of banking facilities, as well as to make adequate funds available to finance development programs in agriculture, trade, transportation, and industry, and to establish specialized financial institutions for this purpose.
Increasing the banking structure’s sturdiness
The central bank is required to take various steps to strengthen the country’s banking structure, such as deposit insurance, the expansion of banking facilities in unbanked areas, and so on.
The CBN set interest rates to maintain economic growth while aiming for low inflation to decide inflationary pressures.
CBN examines all aspects of the economic situation and examines a wide range of economic statistics to get a comprehensive picture of the economy.
On the purchase of assets facility since 2009, the Central Bank of Nigeria has served as an Asset Purchase Facility (APF) to purchase “high-quality assets financed by the issue of Treasury bills and the cash management operations of the Debt Management Office,” thereby enhancing credit market liquidity.
The Nigerian Central Bank promotes consumer protection and community development. The customer is the most important person in the economy, and every business can only succeed if the customer is satisfied. This explains why the customer is considered King.
The customer has many rights as a King. A King, on the other hand, has obligations to himself and the economy. Customers of banks in Nigeria have certain rights and duties guaranteed by law, regulation, and conventions.
These rights include the right to choose, the right to privacy and confidentiality, the right to safety, the right to equality, and the right to good service.
Regulatory Functions Of CBN
The Central Bank is responsible for ensuring monetary and price stability, issuing legal tender currency in Nigeria, maintaining external reserves to protect the international value of the legal tender currency, promoting a sound financial system in Nigeria, acting as a banker and providing economic and financial advice to the Federal Government of Nigeria.
The Central Bank of Nigeria (CBN) is also in charge of developing the country’s money and capital markets. Following this, the CBN introduced treasury bills in 1960 and treasury certificates in 1968, as well as facilitating the establishment of the Lagos Stock Exchange in 1961 and the Securities and Exchange Committee in the early 1970s.
The CBN regulates the laws to balance the economy’s inflation and deflation. It regulates the laws to balance the economy’s inflation and deflation.
Functions Of CBN To Commercial Banks
Through its efforts to ensure that all financial institutions operating in the nation had a sufficient capital basis, the central bank played an essential role in the development and financial credibility of Nigerian commercial banks (required reserves).
Serves As The Bankers’ Bank
The central bank keeps track of commercial banks and other financial institutions operating in the country. All other banks in the country are required by law or convention to keep a certain percentage of their total deposits in reserve with the Central Bank.
These reserves assist the Central Bank in exerting control over commercial banks’ credit issuance. They also keep spare cash at the Central Bank, from which they draw as needed. This is how the Central Bank functions as a bank for bankers.
Last-Resort of Lender
In times of crisis, the other banks in the country rely on the Central Bank for assistance. This assistance may take the form of a loan secured by approved securities or a rediscount of bills of exchange. In difficult times, the Central Bank is thus the “lender of last resort” for other banks, because there is no hope of receiving assistance from any competing institution.
As a result, they keep current accounts for commercial banks. Similarly, it handles trade finance on behalf of banks’ customers. Finally, it serves as a temporary home for banks while they carry out their functions as lenders of last resort.
The control of credit, i.e., regulating the volume and direction of bank loans, is perhaps the most important function of a Central Bank today. The volume of credit is heavily influenced by the country’s employment and price levels.
Banker And Government Advisor
The Central Bank serves as the federal government’s financial adviser in the following capacities: Provides foreign exchange for debt repayment or the purchase of foreign goods.
Accepts government deposits, provides financial information, and advises the government on economic, monetary, and fiscal matters.
Lastly, they maintain the federal government’s account.