Central Bank of Nigeria (CBN)
The central bank is the Apex bank established by an act of parliament and charged with management, supervision, and control of the national monetary affairs and coordination of banking and finances of a country.
The CBN was established by the CBN act of 1958 but commenced operation in July 1959. It is the highest body of financial institutions in Nigeria that regulates the monetary policy.
The central bank is a financial institution owned by the government of a nation and charged with the responsibility of managing the expansion and contraction of the volume, cost, and availability of money in the interest of public welfare. The governor of the central bank is appointed by the government. The central bank is primarily a nonprofit making entity.
It is a government owned bank.
Functions of Central Bank
1. The Central bank has the sole authority to issue currencies: They issue currency and no other bank can perform this function.
2. Bankers to the government: It serves as a banker and acts as an agent to the government and keeps finances and all accounts of the government by acting the role of a custodian.
3. Bankers bank: The central bank acts as a banker to the commercial bank, it helps the bank to facilitate interbank transactions. They use it as individuals use commercial banks. They keep part of their deposit with the central bank and withdraw from it when their liquidity runs down.
4. Lender of last resort: They assist commercial banks in the country, the commercial bank turns to the central bank as a last resort. When they are short of cash they borrow from the central bank.
5. Maintain external reserves: The central bank is charged with the responsibility of maintaining external reserves in order to safeguard the international value of the currency. It manages the foreign exchange system of a country.
6. Promotes Economics Growth: The central bank promotes economic growth by ensuring the development of the money and capital market, developing banking habits, and a sound financial system.
7. As an advisor to the government: As an advisor, the central bank gives advice to the government regarding economic policy matters, money market, capital market, and government loans. Apart from this, the central bank has the responsibility of promoting monetary stability. It uses various instruments of monetary policy to control commercial banks, regulate the supply of money in the market, and control inflation.
8. Banker to discount houses: Financial houses like hire purchase companies and insurance companies run to the central bank to borrow money when they run short of cash and they also supervise the operation of finance houses.
9. The central bank controls credit for commercial banks in order to monitor and control deflation and inflation in the country. It is responsible for all monetary operation in the area of money supply in the economy
10. The central bank determines the legal reserve ratio for commercial banks.