History of the Central bank of Nigeria
The central bank of Nigeria was established in 1958 under Act which conferred on it a number of functions and powers, including powers to control the operations of the commercial banks as amended and consolidated in the series of Central Bank Acts and Banking Decrees of 1970. Under the Act, the principal objectives of the Bank are:
- the issue of legal tender currency in Nigeria,
- the maintenance of external reserves to safeguard the international value of the currency,
- the promotion of monetary stability and a sound financial structure in Nigeria, and
- serving as banker and financial adviser to the Federal government of Nigeria.
Placed at the apex of the apex of the banking structure in Nigeria, the central bank was originally designed under the 1958 Act to ensure that control over monetary policy was firmly in the hands of the bank. Within that framework, it was recognized that although the bank could not be completely independent of the government, it could be independent within the government.
However, on the premise that the final responsibility for monetary policy rests with the government in line with the Government’s Development Plan objectives, the autonomy and the controlling powers originally assigned to the bank were gradually and eventually completely shifted to the government through a series of revisions culminating in the Central Bank Amendment Decree of 1970. The Government now exerts a dominant influence on the operations of the bank since the minister of finance has the power to accept or reject the decision of the board of Director of the Bank.
In spite of the serious erosion of its authority over the years, the central bank has faithfully pursued one of its basic functions: to promote a sound financial structure. The bank as employed two major approaches in pursuing this function. The first is the use of the traditional and ancillary central banking tools to perform its service functions. The other is the use of unorthodox methods urgently needed in a development setting to perform its development functions.
Although commercial banking and currency issue functions predate the Central Bank of Nigeria, the establishment of the bank saw the redemption of the West Africa Currency Board notes and coin and the issuing of Nigerian notes and coin instead. This has in no small measure contributed to the rapid monetization of the economy as discussed earlier. As banker to the government, it took over the banking business of the Federal Government; and assumed responsibility for the management of the internal public debt of the Federation, that is dealing with both the size and composition (maturity and holdings) of Government internal debt. The Central Bank in performing its public debt management functions:
- advises the government in the timing of floatation of debt instruments and the terms of issues;
- advertises public subscription to the issues;
- collects the proceeds of issues on behalf of the Government;
- supervises the issue of certificates and warrants and maintains proper account;
- pays interest and principal on due dates and manages the sinking fund set up purposely for the redemption of the issues.
The instruments of debt management issued by the Central Bank on behalf of the Government are Treasury Certificates and long-dated Development Stocks. It also provides temporary advances in form of `ways and means’ to the government.
As part of its services and supervisory functions, it examines and oversees the books and affairs of licensed banks. It is also scrutinizes and appraises the operations and financial positions of the banks, using their statutory returns and annual balance sheets. The promotion of inter-bank clearing by the central bank in addition to advances and rediscounting facilities has further helped not only in promoting improved payment mechanism among the banks but also in contributing to economies in the use of funds.
As part of its promotional work, the central bank aids in the development of money markets and capital markets. Since many of the financial instruments initiated by the bank are traded in those markets, this work is most important.
In recognition of the need to broaden the institutional financial base in which financial instruments can be effectively used In a developing securities market ,the central bank, encourages not only the establishment of additional commercial banks, but also branches of banks, especially in rural areas, for promoting banking habit. It has also diversified and broadened the banking base to include merchant banking, the number of which rose from one in 1974 to 10 in 1983.
A major way in which the Central Bank has contributed to the pace of financial institutional depending is via the promotion and equity participation in the development banks for the purposes of savings mobilization and the channeling of such savings to productive investments. It has been actively involved in the promotion and establishment of the Nigerian industrial Development Bank (NIDB), the Nigerian bank for commerce and industry (NBCI), the Nigerian Agricultural and cooperative bank (NABC) and the federal Mortgage bank of Nigeria (FMBN). The central Bank has become a major shareholder in these institutions, providing expertise, management and representation on their Boards. It has a 40 per cent equity participation in NBCI; 40 per cent equity participation in FMBN, loan and equity participation in the NABC while 94.2 percent of the NIDB’s capital base is jointly owned by the Central Bank and the Federal Government of Nigeria.