Functions of Central Bank of Nigeria

Would you like to know the functions of central bank of Nigeria?

When you think of a bank, the first thing that comes to mind might be the institution that holds your checking or savings account.

Although there are several different types of banks in Nigeria, all serving different needs. Today, we would be talking about the functions of the central bank of Nigeria.

The Central Bank of Nigeria has taken on an expanded role in oversight, regulation and leadership.

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.

What Is the Central Bank of Nigeria?

The Central banks worldwide 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.

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. Firstly, before that, the banking industry was poorly controlled. Lots of banks were non-viable and the banking system needed order.

The first CBN governor was Roy Pentelow Fenton, who was appointed on 24th of July 1958 and remained in the position till 1963

Below are the some important functions of the Nigerian central bank.

Functions of Central Bank of Nigeria

  1. CBN prints money

The first main function of the central bank of Nigeria 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. The CBN is the only bank that has the right to produce Nigerian currencies. Any other bank that does so will be severely dealt with.

2.  Promotion and Maintenance of monetary stability

The attainment of monetary stability rests on a central bank’s ability to evolve effective monetary policy and to implement it effectively.

Specifically, liquidity management by the Central Bank of Nigeria involves the routine control of the level of liquidity in the system in order to maintain monetary stability.

The CBN determines target growth rates of money supply, which are compatible with overall policy goals. It also seeks to align commercial and merchant banking activities with the overall target.

The CBN through its surveillance activities over banks and non-bank financial institutions seeks to promote a sound and efficient financial system in Nigeria.

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Roles and functions of the Central bank of Nigeria

3. Banker and  financial adviser to the federal government.

Another major aspect when talking about the functions of central bank of Nigeria is providing banking services to the state and local governments and may act as bankers to institutions, funds, or corporations set up by the Federal, State, and Local Governments.

The CBN also finances the government in periods of temporary budget shortfalls through Ways and Means Advances subject to limits imposed by law.

As a financial adviser to the federal government, the bank advises on the nature and size of government debt instruments to be issued, while it acts as the issuing house on behalf of the government for the short, medium, and long-term debt instruments.

The bank coordinates the financial needs of the government in collaboration with the treasury to determine appropriately the term, timing of issues, and volume of instruments to raise funds for government financing.

4. 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.

5.  Custodian of national reserves

It is the central bank that serves as the custodian of the nation’s reserves of gold and international currency. It is its duty to take appropriate measures to safeguard these reserves.

6. CBN serves as government’s bank

It is impossible for any government to partner with other commercial banks according to the country’s constitution. Thereby leaving the government no option than to partner with CBN.

The government of the day does this by depositing all it realized from taxes collected from citizens and every other income realized from businesses it engaged itself in the bank.

7. 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.

8. Promoting consumer protection and community development

The customer is the most important person in the economy and every business succeeds only when the customer is happy. In Nigeria, customers of banks have certain rights and duties guaranteed by law, regulation, and conventions.

Some of these rights include; right to choose, the right to privacy and confidentiality, the right to safety, the right to equality, as well as the right to good service.

9. Banker and lender of last resort to banks

The CBN maintains a current account for deposit money banks. It also provides clearing house facilities through which instruments from the banks are processed and settled.

Similarly, it undertakes trade finance functions on behalf of banks’ customers. Finally, it provides temporary accommodation to banks in the performance of its functions as a lender of last resort.

10. Ensuring great relationship with foreign banks

This bank ensures that there is a cordial relationship between itself and foreign banks of other countries.

If there is any unwanted situation financially, the bank will feel free to borrow money from the foreign bank without any hitch.

The world of Central Banking is one of a variety of structures, functions, and powers, which are in themselves by-product of the economic, political, and other realities prevailing in a society

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11. 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.

12. Debt Management

In addition to its function of mobilizing funds for the federal government, the CBN in the past managed its domestic debt and services external debt on the advice of 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 sensitizes the government on the implications of the size of the debt.

If the government-run out of cash while performing its duty, the central bank will give out loans to the government so as to conclude its project and work for the country.

This loan will be paid back by the government as soon as it gets the amount in its account.

13. Clearing house for cheques and other financial instruments

The central bank performs the duty of a clearing house for cheques.

It settles the accounts of commercial banks and enables them to clear their dues by the process of book entries.

It should be carefully noted that a central bank does not come in competition with other banks. That is why it does not pay interest on the money kept with it.

14. Promotion to Entertain Public Complaints

The Central Bank of Nigeria serves as a judge between Nigerian banks and their clients. It also regulates relationships between banks. The bank has a public complaint desk in the head office at its every branch.

15. It regulates the laws to balance the inflation and deflation in the economy

Lastly on the functions of central bank of Nigeria is conducting development finance roles through its credit schemes such as: Refinancing facilities for agricultural export commodities, rural finance, and banking support scheme, Agricultural credit guarantee scheme, Commercial Agricultural Credit Scheme, Small and medium scale industry credit scheme

Functions of Central Bank of Nigeria (Summary)

Central banks are not, like the commercial banks in which you might deposit money.

What central banks do is conduct monetary policy, using various tools to influence the amount of money circulating in an economy, interest rates charged on loans, and the rate of inflation.

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