20 Functions of central bank of nigeria

The Central Bank of Nigeria (CBN) is the apex bank of Nigeria, and it plays a vital role in the country’s economy. Curious to learn more about the functions of the CBN? Here is a perfect unbiased introduction to this blog post in a conversational tone.

The CBN was established in 1958, and it is responsible for issuing the country’s currency, the naira. It also regulates the financial system and promotes economic development and stability.

One of the key functions of the CBN is to ensure the stability of the financial system. This involves monitoring the performance of banks and other financial institutions, and taking steps to prevent crises. The CBN also plays a role in promoting economic growth, by setting interest rates and providing credit to businesses.

In addition to its traditional functions, the CBN has also been involved in a number of other initiatives in recent years. For example, it has launched a number of programs to promote financial inclusion, and it has also been working to develop a digital currency.

The CBN is an important institution in the Nigerian economy, and its functions have a significant impact on the lives of Nigerians. If you are interested in learning more about the CBN, I encourage you to read this blog post.

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History of the Central Bank of Nigeria

Functions of central bank of nigeria

The Central Bank of Nigeria (CBN) is the central bank and apex monetary authority of Nigeria. It was established by the CBN Act of 1958 and commenced operations on 1 July 1959. The CBN’s primary mandate is to promote monetary and price stability, and to maintain a sound financial system in Nigeria.

The CBN was established in the context of Nigeria’s impending independence from the United Kingdom. Prior to independence, Nigeria’s currency was issued by the West African Currency Board (WACB), a regional central bank that also served other British colonies in West Africa. The WACB was not well-suited to meet the needs of an independent Nigeria, and so the decision was made to establish a new central bank.

The CBN was modeled on the Bank of England, and its early governors were all British nationals. However, the bank was gradually indigenized over time, and the first Nigerian governor, Alhaji Aliyu Mai Bornu, was appointed in 1963.

In the early years of its existence, the CBN focused on developing the financial system and promoting economic growth. It established a number of new financial institutions, such as the Nigerian Industrial Development Bank and the Nigerian Agricultural Credit and Rural Development Bank. It also played a key role in the development of the Nigerian capital market.

In the 1970s and 1980s, the Nigerian economy experienced a number of shocks, including the oil price shocks of the 1970s and the debt crisis of the 1980s. These shocks led to high inflation and economic instability. The CBN responded by implementing a number of austerity measures, including raising interest rates and restricting credit growth.

In the 1990s, the CBN began to implement a number of reforms aimed at liberalizing the financial sector and promoting economic growth. These reforms included reducing interest rates, deregulating the foreign exchange market, and privatizing some state-owned banks.

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The CBN has continued to play a key role in the Nigerian economy in the 21st century. It has overseen the country’s transition to a cashless society and has promoted the use of digital financial services. The CBN has also played a key role in responding to the COVID-19 pandemic, providing financial support to businesses and individuals.

The CBN has been successful in achieving its objectives to a large extent. It has maintained monetary stability and promoted the development of the financial system. The CBN has also played a key role in supporting economic growth. However, the CBN has also faced some challenges, such as high inflation and foreign exchange shortages.

Here is a brief overview of some of the key milestones in the history of the CBN:

  • 1958: The CBN Act is passed by the Parliament of Nigeria.
  • 1959: The CBN commences operations on 1 July.
  • 1960: Nigeria gains independence from the United Kingdom.
  • 1962: The CBN issues the first Nigerian currency notes.
  • 1963: The first Nigerian governor of the CBN, Alhaji Aliyu Mai Bornu, is appointed.
  • 1967-1970: Nigeria experiences a civil war. The CBN plays a vital role in supporting the war effort and maintaining economic stability during this difficult period.
  • 1973: The Nigerian currency is decimalized, and the naira is introduced.
  • 1986: The CBN introduces the Structural Adjustment Programme (SAP), a series of economic reforms aimed at diversifying the economy and reducing reliance on oil exports.
  • 1991: The CBN Act is amended to give the bank more independence from the government.
  • 1999: Nigeria returns to democracy. The CBN plays a key role in supporting the new democratic government and promoting economic growth.
  • 2006: The CBN introduces the cashless policy, aimed at reducing the use of cash and promoting the use of electronic payment systems.
  • 2007: The CBN Act is amended again to give the bank even more independence and to expand its powers.
  • 2009: Nigeria experiences a global financial crisis. The CBN takes a number of measures to mitigate the impact of the crisis and protect the Nigerian economy.
  • 2011: The CBN introduces the Bank Verification Number (BVN), a unique identifier for all bank customers in Nigeria.
  • 2014: Nigeria experiences a fall in oil prices, which leads to a recession. The CBN takes a number of measures to support the economy during this difficult period.
  • 2020: Nigeria experiences the COVID-19 pandemic. The CBN takes a number of measures to support the economy and mitigate the impact of the pandemic.

Here is a brief overview of the CBN’s history:

  • 1958: The Central Bank of Nigeria Act is passed by the Nigerian Parliament.
  • 1959: The CBN opens its doors for business.
  • 1960: Nigeria gains independence from Britain. The CBN becomes the central bank of the newly independent nation.
  • 1963: The CBN issues the first Nigerian banknotes.
  • 1973: The Nigerian currency is changed from the Nigerian pound to the naira.
  • 1977: The CBN introduces the first Nigerian treasury bills.
  • 1986: The CBN establishes the Nigerian Deposit Insurance Corporation (NDIC) to protect depositors’ funds in Nigerian banks.
  • 1991: The CBN Act is amended to give the bank more independence from the government.
  • 1997: The CBN Act is amended to bring the bank back under the supervision of the Ministry of Finance.
  • 1998: The CBN Act is amended again to give the bank more autonomy.
  • 2007: The CBN Act is repealed and replaced with a new Act that gives the bank even more independence and autonomy.

20 Functions of the Central Bank of Nigeria

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Formulate and implement monetary and exchange rate policies: 

The CBN sets and implements policies to control the money supply and interest rates, and to manage the value of the Nigerian naira. This helps to promote price stability, economic growth, and employment.

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The CBN is responsible for printing and distributing Nigerian naira banknotes and coins. It also ensures that the currency is counterfeit-proof and that it is available to the public in sufficient quantities.

Maintain external reserves:

 The CBN manages Nigeria’s external reserves, which are its holdings of foreign currencies. These reserves are used to support the naira, to pay for imports, and to invest in foreign markets.

Promote a sound financial system in Nigeria:

 The CBN supervises the Nigerian financial system and sets regulations to ensure its stability and efficiency. It also promotes financial inclusion, which means making financial services accessible to everyone.

Act as banker and financial adviser to the Federal Government: 

The CBN is the government’s banker and financial adviser. It provides the government with banking services, such as managing its accounts and processing payments. It also advises the government on economic and financial matters.

Provide economic and financial advice to the Federal Government:

 The CBN provides the government with advice on economic and financial matters, such as budget planning and debt management. It also conducts research on the Nigerian economy and publishes reports on its findings.

Manage the Government Securities Market:

 The CBN manages the Government Securities Market, which is where government bonds are traded. This helps to raise money for the government and to finance its spending.

Supervise the banking system: 

The CBN supervises the Nigerian banking system to ensure its stability and efficiency. It also promotes competition and innovation in the banking sector.

Promote financial inclusion: 

The CBN promotes financial inclusion by making financial services accessible to everyone, including the poor and marginalized. It does this by developing new financial products and services, and by working with banks and other financial institutions to expand their reach.

Protect consumers of financial services: 

The CBN protects consumers of financial services by ensuring that banks and other financial institutions comply with regulations and that they treat customers fairly. It also provides consumers with information and education about financial products and services.

Monetary Policy

The CBN is responsible for formulating and implementing monetary policy in Nigeria. This involves managing the money supply and credit in the economy to achieve macroeconomic objectives such as price stability and economic growth.

The CBN uses a variety of tools to regulate the financial system, including:

  • Setting interest rates: The CBN sets the Monetary Policy Rate (MPR), which is the benchmark interest rate for the economy. The CBN can raise or lower the MPR to influence the cost of borrowing and lending, and thereby manage the overall level of economic activity and inflation.
  • Open market operations: The CBN buys and sells government securities in the open market to inject or withdraw liquidity from the economy. This can help to stabilize interest rates and manage inflation.
  • Reserve requirements: The CBN requires banks to hold a certain percentage of their deposits in reserve with the CBN. This helps to control the money supply and reduce the risk of bank failures.

Financial System Regulation

The CBN is responsible for regulating the financial system to ensure its stability and efficiency. This includes regulating banks, other financial institutions, and the capital market.

The CBN uses a variety of tools to regulate the financial system, including:

  • Licensing and supervision: The CBN issues licenses to banks and other financial institutions, and supervises their operations to ensure that they are complying with all applicable laws and regulations.
  • Capital requirements: The CBN sets minimum capital requirements for banks and other financial institutions. This helps to ensure that they have sufficient financial resources to absorb losses and protect depositors.
  • Prudential guidelines: The CBN issues prudential guidelines to banks and other financial institutions on how to manage their risks. This helps to reduce the risk of financial instability.
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Financial System Development

The CBN also plays a role in developing the financial system. This includes promoting financial inclusion, supporting the development of new financial products and services, and deepening the capital market.

The CBN uses a variety of tools to promote financial system development, including:

  • Financial inclusion initiatives: The CBN has implemented a number of initiatives to promote financial inclusion, such as the Microfinance Policy and Regulatory Framework and the National Financial Inclusion Strategy.
  • Support for new financial products and services: The CBN supports the development of new financial products and services, such as mobile banking and electronic payments. This helps to make financial services more accessible and affordable for everyone.
  • Capital market development initiatives: The CBN has implemented a number of initiatives to develop the capital market, such as the Capital Market Master Plan and the Roadmap for the Development of the Nigerian Capital Market. This helps to make it easier for businesses to raise capital and for investors to invest in the Nigerian economy.

Managing the country’s payment system 

The CBN manages the country’s payment system, which is the infrastructure that enables people and businesses to make and receive payments. The CBN does this to ensure the efficiency and security of the payment system.

Banking functions:

  • Banker and financial adviser to the Federal Government: The CBN acts as the banker and financial adviser to the Federal Government of Nigeria. It manages the government’s accounts, provides it with loans and other financial services, and advises it on economic and financial matters.
  • Banker and lender of last resort to banks: The CBN acts as the banker and lender of last resort to commercial banks in Nigeria. It provides them with loans and other liquidity support to help them meet their obligations to their depositors.
  • Clearing house: The CBN provides clearing house services for commercial banks in Nigeria. This allows banks to settle their payments with each other efficiently and securely.

Banker to the government

The CBN is the banker and financial adviser to the Federal Government of Nigeria. It manages the government’s accounts, provides loans and advances to the government, and advises the government on economic and financial matters.

Conclusion

In conclusion, the Central Bank of Nigeria (CBN) is a crucial institution that plays a vital role in the Nigerian economy. It is responsible for maintaining monetary stability, regulating the financial system, and promoting economic development. The CBN has a wide range of functions, including issuing currency, managing foreign reserves, and setting interest rates. It also plays a supervisory role over banks and other financial institutions.

The CBN’s work is essential to the smooth functioning of the Nigerian economy. It helps to ensure that there is enough money in circulation, that the value of the naira is stable, and that the financial system is sound. The CBN also plays an important role in promoting economic growth and development.

I hope this blog post has given you a better understanding of the functions of the Central Bank of Nigeria. If you have any questions or comments, please feel free to leave them below. I would also be grateful if you could share this post with your friends and followers. Thank you for your support!

Richard okechukwu Chinedu

FinTech enthusiast with a passion for making financial technology accessible and understandable. I break down complex concepts into actionable insights to empower readers to navigate the ever-evolving world of FinTech.

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