Central Bank of Nigeria – Its Objectives and Functions

Central Bank of Nigeria – Its Objectives and Functions

THE OBJECTIVES OF THE CENTRAL BANK OF NIGERIA [CBN] derives from the provisions of the CBN decree No 24, 1991 as amended include-

Issuance of legal tender currency notes and coins in Nigeria, maintenance of Nigeria External reserves to safeguard the international value of the legal tender currency, promotion and maintenance of monetary stability, sound and efficient financial system in Nigeria, and acting as banker and financial adviser to the federal government they organize and provide for development finance. They conduct development of research and the procumbent of monetary data and statistics on the economy and acting as an agent of the government.

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For the achievement of its core objective, the Central Bank of Nigeria undertakes certain functions which are detailed below:

  1. CURRENCY ISSUE AND DISTRIBUTION

In Nigeria, economic transactions are to a large extent, cash oriented. The bank currency issue function which involves distribution, safe custody of stocks and management of orders, constitutes a vital part of the day – to –day regular supply of currency, economic activities would be restricted. The bank by law, is the only bank of issue in the country , it started by issuing the Nigeria pound in 1959, which was in circulation until January 1973 when decimalised currency, the Naira was introduced in four major demonstrations, 50k , #5 , and #10.

In February 1976, a higher denomination, the #20 note was introduced in response to the growth in economic transactions.

A currency exchange exercise was carried out from 25th Aprils 6th may 1984. It involved the replacement of the #1, #10 and 20 note with one’s of similar design but different color. The purpose of the exercise was to render worthless the nefarious activities of those had taken the currency notes outside the Nigeria border illegally, demonetize the notes in the hands of those who acquired them illegally and nullify the effect of forged currency notes. A total of # 4.9 billion out # 5.3 billion of the currency in circulation was retrieved and exchanged.

In 1999 December, # 100 was introduced and it became the highest denomination in circulation. Its introduction was to enhance the payment system and substantially reduce the volume and cost of production of legal tender notes. In the year 2000 and 2001, N200 and N500 notes were introduced. The bank’s note and coins are commissioned for printing and minting company [NSPMC ] under condition of top security and using higher technical devices and designs to make counterfeiting very difficult.

  1. BANKER TO OTHER BANKS

The banks promote confidence in the system through its activities as banks to other banks within and outside Nigeria and may seek the cooperation of other banks in pursuit of this objective [CBN decree No 24 of 1991. Sections 37 and 38 ].

The purpose is for the bank to promote and sustain reasonable banking services for the public and to ensure a high standard of conduct and professionalism in the banking activities.

The CBN as banker to other issues directives on cash reserve and liquidity rations, prudential requirement and on other activities of the banks. This is done through its monetary policy circular, which is issued at the beginning of each fiscal year. Sanctions are usually imposed on banks for non-compliance with monetary guidelines.

C BANKER TO THE GOVERNMENT

The Central Bank of Nigeria as banker to the federal government undertakes most of the federal government’s banking business within and outside Nigeria. The bank also provides banking services to the state and local government and it may act as banker to institutions. Funds or corporations set up by the federal state and local government. However a new directives has been issued by the federal government that these accounts be transferred to the commercial and merchant banks to relieve the central bank of retail banking activities. The CBN is required by law to provide temporary financial accommodation to the federal government when there is a shortfall in revenue through the granting of ways and means advances and at rates determined by it. The statutorily, the total amount of such temporarily accommodation should not exceed 12.5 percent of the estimated recurrent budget revenue of the federal government for the fiscal year. The Central Bank of Nigeria mobilizes funds for the federal government through the issuance of short and long term government securities. The short term securities are mainly treasury bills and certificates while the long term debt instrument are referred to as federal government development stocks.

D DEBT MANAGEMENT

The CBN also manages its domestic debt and services external debt on the instruction of the federal ministry of finance. The CBN is empowered to issue debt instrument and manage federal government domestic debt in term and conditions agreed upon by the government and the bank.

I DOMESTIC DEBT

Domestic debt management involves advising the federal government as the timing and size of new debt instrument, advertising for public subscription to new issues and collecting proceeds of issues for and on behalf of the federal government. It also includes payment of interest, redeeming matured stocks, and sensitizing the government on the implication of the size of debt and budget deficit.

Owing to the federal government extra budgetary expenditures, fiscal deficits have persisted. Domestic debt outstanding increased from #404, 101.6 billion in 1998 to #794,806.3 billion in 1999, indicating an increase of #390,704.7 million or 96.7 percent.

EXTERNAL DEBT:

The CBN also cooperate with other agencies to manage the country, external debt. The federal ministry of finance is in change of multilateral and bilateral debts, while the CBN is responsible for short-term trade debts. Draw – down on fresh loans, capitalization of some unpaid interest, changes on debt outstanding, explain the huge size of Nigeria’s external debt. However since 1996 the debt stock has trended downwards, it has dropped from its $ 32.6 billion in 1995 to us $ 28.04 billion at end – 1999. Debt management by the bank involves debt service payment and participation in debt restructuring through rescheduling and debt refinancing, as well as debt conversion to ensure that the debt is reduced to a manageable size.

PROMOTION OF MONETARY STABILITY.

The effectiveness of the central bank is executing its functions hinges crucially on its ability to promote monetary stability. Price stability is indispensable for money to perform its role of medium of exchange, store of value, standard of deferred payments and units of account. Attainment of monetary stability rest on the central bank’s ability to involve effective monetary policy and implement it efficiency.

FOREIGN EXCHANGE MANAGEMENT

foreign exchange management involves the acquisition and deployment of foreign exchange resources in order to reduce destabilizing short – term capital flow. The CBN monitors the use of scarce foreign exchange resources to ensure that foreign exchange disbursement and utilization are in vine with economic priorities and within the foreign exchange resource to ensure that foreign exchange disbursement and utilization are in vine with economic priorities and within the foreign exchange budget.

G FACILITIES TO ENTERTAIN PUBLIC COMPLAINTS

The CBN tries to ensure that banks do not take undue advantage of their customers. For this purpose, the bank maintains a public complaints desk at its head office and in each of its branches and currency centers. Instances

where banks are found to be unfair to the customers, appropriate sanctions are imposed on such banks.

SOME DEVELOPMENTAL ACTIVITIES OF THE `CBN

  1. PROMOTION OF THE GROWTH FINANCIAL MARKETS.

A major function of the bank is the promotion of the growth of the financial markets, which comprises the money and capital markets.

The money market is the market for mobilizing short – term funds while capital market deals with long – term funds.

  1. PROMOTION OF AND SUPPORT FOR SPECIALISED

Another way in which the Central Bank of Nigeria has influenced. The development of the Nigerian financial system is through the promotions of and continued assistance to the development of banks and institutions. These include:

  1. The Nigeria industrial development bank [NIBD]. The major shareholders in the NIDB are CBN [40 percent] and the federal government [60 percent].
  2. The Nigerian bank for commerce and industry [NBCI ]. The NBCI’S authorized capital 50 million was contributed by the CBN [40 percent ]. And the federal government [60 percent ].
  3. The Nigerian Agricultural and co-operative bank [NACB]. The CBN own 40 percent of the equity capital of the NACN, while the federal government owns 60 percent.
  4. The federal mortgage bank of Nigeria [FMBN]: out of the FMBN’S equity capital of # 150 million, the CBN subscribed 40 percent and federal government 60 percent.
  5. The Nigerian export – import bank [NEXIM ]. The NEXIM has a share capital     of #500 million held equally by the CBN and the federal government.

OTHER PROMOTIONAL ACTIVITIES OF THE BANK

The CBN has promoted growth in various sectors of the economy. These include:

  1. Small – scale enterprises.
  2. They encourage rural banking habit nation wide and channel funds into rural development
  • They encourage agricultural and manufacturing activities.
  1. The bank has been very active in promoting special scheme, funds to enhance economic development by the agricultural credit guarantee scheme [ ACGS ], The refinancing and rediscounting facility [RRF and the foreign input facility [FIF ], by the small and medium scale enterprises [SMES] apex unit loan scheme and by the national economic reconstruction fund [NERFUND ].

MONETARY POLICY, MEANING, OBJECTIVES AND INSTRUMENTS.

Monetary policy can be used to influence economic activities, and achieve economic objectives of the government. It is however difficult to achieve some economic objectives of the government simultaneously using monetary policy alone. To minimize the conflict between objectives, it is usual for government to combine both monetary and fiscal policies.

The onus of formulating monetary policies in Nigeria rests on central bank. The ministry of finance formulates fiscal politics in collaboration with the presidency.

What is monetary policy?

Monetary policy is simply put as a government policy about money. It is a deliberate manipulation of cost and availability of money and credit by the government as a means of achieving the desired level of prices, employment, output and other economic o0bjectives. The government of each country of the world embarks upon policies that increases or reduces the supply of money because of the knowledge that money supply and cost of money affected every aspect of the economy. By affecting the aggregate demand, money supply affects the level of prices and employment. It also affects investment level, consumption , and the rate of economic growth. An increase or reduction in the cost of money [interest rate] affects all these variables too.

Monetary policy is defined in the central bank of Nigeria brief as ‘’ the combination of measure designed to regulate the value, supply and cost of money in an economy, in consonance with expected level of economic activity”. Monetary policy focuses on money supply as a means of achieving economic objectives.

OBJECTIVES OF MONETARY POLICY

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