The central bank of Nigeria (CBN) was established by the CBN act of 1958. It however commenced operations officially on the 1st of July,1959. Banking was still at its infancy, when it was established,with very few banks a inception. Banking has however come of age now and the central bank’s role is becoming more dynamic due to the ever changing economic environment, as well as globalization.
Some of the roles of the central bank of Nigeria includes the following:
(1) Management of foreign reserves: The bank is in charge and keeps accounts of all receipts into and withdrawals from the foreign reserves account.
It is denominated in dollars ($),and our reserves currently stands at around $28billion.Receipts into this reserve is money collected from sales of crude oil,while withdrawals is used to service all kinds of transactions requiring dollars.most especially customers, banks, bureau de change (BDC) etc.
Nigeria’s foreign reserves has continued to dwindle over the years. The higher the reserve is,the better for the country and vice versa. When the reserve keeps getting higher, it means the country is exporting more goods than it is importing, and in turn earning more dollars.while if it keeps reducing, it automatically follow that the country is importing more than it is exporting. In comparison with some other African oil producing countries, Angola has foreign reserves of up to $300billion.
(2) Banker to the government: The central bank is responsible for keeping all monies belonging to the government of the day.
This role of the central bank was difficult to practice before the implementation of the single treasury account (STA) was done in 2015. Before now, most of the monies collected by government were being kept by commercial banks,who had so much government funds to play with and where involved in sharp practices.
Such sharp practices includes borrowing government money,coming from one revenue agency or ministry to another ministry requiring same funds.In summary, the STA has aided the central bank of Nigeria perform its role of being the banker to the government.
(3) Banker to other banks: The central bank of Nigeria serves as a banker to other banks. Other banks being a bank to our conventional banks . Commercial banks are instructed by the central bank to keep a percentage of the liquid asset with them.
This is referred to as cash reserve ratio (CRR). At the last monetary policy committee (MPC) meeting of the central bank, CRR was maintained at 20%.
It means 20% of all cash of the commercial banks will be kept with the central bank,who may decide to review such.This makes the central bank a banker to other banks.
(4) Overseeing the financial services sector : The central bank oversees all activities of operators in the financial sector.
They pay visit,impose fines and sanctions on financial institutions,can look into the books,give out guidelines etc to operators that must be adhered to strictly. As such,they oversee all affairs in the sector.
(5) Directing money supply: The central bank is able to direct money supply into the economy.The instruments mostly used are treasury bills ,treasury certificates and bonds.
When Indicators show there is too much money in circulation in the economy,they will sell any of these instruments and withdraw money from the public.
If on the alternative indicators show money supply is too low,they will buy any of this instruments already in public possession.
(6) Determining interest rates: This is one of the fundamental roles of the central bank in controlling the Nigerian economy.
At the MPC meeting,a rate is agreed at and later made use of by all banks.The rate is called the Monetary policy rate (MPR).
This rate forms the benchmark upon which commercial banks will build on to arrive at the interest rates they charge on their products.MPR at the last meeting of the central bank was agreed at 11%.
(6) promoting sound financial environment and monetary policy: By this we mean the central bank must ensure there are no bottlenecks in the system that will not allow the sector run smoothly.
The central bank ensures there is sanity on the financial system and protection for all stakeholders like bank customers from exploitation and other charges,shareholders etc.
Try to imagine banks operating without ghe existence of the central bank.We might all wake up one day to find our investment is gone.monetary policy can be described as a policy tool used to actualize macro economic objectives.
Monetary policy, put another way is a combination of measures used to regulate the value, availability, and cost of credit which will in turn influence the volume or quantity of money supply. This is a key role the central bank performs as it affects the general level of prices.
(7) Economic growth and development: economic growth has so many definitions according to so many people. some of it includes being the general increase in savings and population,raising of income level, dealing with the national income objective and many more.
Economic development on the other hand is the sustenance of economic growth over a period of time.Some school of thought believe it is the sustenance of economic growth in under developed countries that is economic development.
The central bank of Nigeria has found it quite challenging to perform this role but it is trying nonetheless.
Looking at the history of the bank, going back many years back, going to the time when the governor of the bank was professor Charles Soludo. It was during his time that the recapitalisation of the banks capital base was done.
All banks were to increase their capital base to N25billion.Many banks fell during that period,but it has ensured the banks we have now are better,can finance more activities,are more globalized with many branches scattered all over the world.
The present governor of the central bank of Nigeria is Mr Godwin Emefiele. He hold a bachelor’s degree ,a masters degree in finance along with some other results from some reputable institutions abroad.he served in Zenith bank for over 18 years in such departments as corporate banking, treasury and financial controls before he was appointed as the Governor of the bank by the then president.
The central bank has received a lot of criticisms and backlash while performing its roles in recent times.such decisions as cancellation of selling foreign exchange to bureau de change (BDC) operators,retaining its MPR at 11% etc.
In conclusion, despite the challenges and criticisms the central bank of Nigeria has continuously received, it is performing its roles and doing its best in sustaining the economy.
We can all see from the highlighted points that the economy wont function well without the central bank performing its role. It is a professional arm that performs some very technical functions.It will continue to evaluate its policies, fine-tune its decisions till the economy gets to the level where it should be.
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