A Central Bank is a state (national) bank established to keep a country’s financial system under control and close supervision. It is the apex of all financial institutions in the country. It is normally a government bank but not managed by government. It plays a regulatory function.
At the end of this unit, you shall be able to:
- Narrate the genesis of the Central Bank of Nigeria
- Draw the Organogram of Central Bank of Nigeria
- State the functions of the Central Bank of Nigeria
3.0 MAIN CONTENT
3.1 GENESIS OF THE CENTRAL BANK OF NIGERIA
The establishment of the West African Currency Board (WACB) provided the base for a monetary type of economy in Nigeria. Its powers were however limited, it was completely devoid of powers to control the quantity of money within its area of control. The inability of the Board to control the supply of money created the need for establishing a Central Bank in Nigeria.
The Board was not also in a position to develop indigenous financial markets which is normally the responsibility-of a Central Bank and which also constitute very important forum in the process of mobilization and allocation of scarce financial resources. In the absence of financial markets, savings that accrued to financial and government Institutions (Federal, Regional and Local) were always invested in London. This meant that there was a free flow of funds from Nigeria to the London financial markets. These were scarce funds that could have been used in developing the local Function economic and
social infrastructures. Here again, the function of controlling the flow of funds between Nigeria and other countries was not performed by an appropriate institution like the Central Bank and hence a necessity for such a bank.
In spite of the clear need for a Central, Bank, propositions and reports for the establishment of such a bank in Nigeria met with a not so straight forward by the opposition by the colonial authorities and half-hearted study reports by the Initial persons or persons (independent or appointed), that studied the possibilities and advantages of establishing such an institution in Nigeria.
The Firm of such reports in favour of the establishment of a Central Bank in Nigeria came from Dr. Mar during the Second World War. Dr. Mar’s research into the Nigerian monetary system resulted in his recommending the establishment of a Central Bank of Nigeria with the following functions17:
- variation of liquid ratios of the commercial hank;
- lender of last resort;
- control of rates of interest;
- open market operations;
- Advising the government on pound sterling exchange rate.
Dr. Mar however, concluded that establishing a Central Bank in Nigeria presupposed the presence of a stock exchange market which was not in existence. Thus the possibility of establishing such an institution within short time period was remote. From 1951 to 1955, there were three other reports namely:
- Newlyn and Rowan report;
- Fisher report and
- IBRD report;
All these reports covered the possibility of establishing a Central Bank in Nigeria. The Newlyn and Rowan report published in 1953 recommended among other things, a reorganization of the West African Currency Board to create the possibility for it to make fiduciary issues, adopt measures aimed at reducing transfer costs charged by banks, and the Africanization of the Board itself. They were however tacitly against the establishment of a Central Bank in Nigeria. This was because they thought the Central Bank in Nigeria was not in a position to promote economic stability through monetary management since such, stability, according to them, was highly influenced by external factors. One may at this juncture be tempted to ask whether there is any sovereign state that is completely isolated from external influences. The answer is no, a priori, without any analysis. The Newlyn and Rowan report however came to a conclusion that a Central Bank was needed in Nigeria before the possible attainment of independence.
Indigenous contributions in favour of the establishment of a Central Bank in Nigeria started to gather momentum when Dr. K.O. Mbadiwe, a parliamentarian, moved a motion in the House of Representatives to that effect on 21st March, 1952. A debate on the motion took place on 9th April, 1952 but the highlight of the debate came from the contribution offered by the Secretary of finance, Honourable E. Hunsworth, C.M.G. According to hint, .the government had the following three points of objection to the establishment of a Central Bank in Nigeria:
(a) The WACB was functioning well;
(b) A Central Bank in Nigeria could have increased inflation instead of controlling it;
(c) Such a bank could not function properly without financial markets (money and capital). Irrespective of this opinion, there was a consensus on the possibility of establishing a Central Bank in Nigeria and Mbadiwe’s motion was passed with some amendments. In November 1952, J.L. Fisher, an adviser to the Bank of England visited Nigeria and later on published a report concerning the establishment of a Central Bank. The last report (excluding Loyness report and recommendations that gave a final impetus to the establishment of a Central Bank in Nigeria), was that submitted by International Bank for Reconstruction and Development (1BRD). This report, although upheld some of the observations of Newlyn and Rowan’s report recommendation for immediate possible establishment of a Central Bank on the Political development and IBRD’s report was concluded with the fact that: Nigeria, and other British West African colonies, were heading towards self-rule and as independent Countries with almost different economic and social structures could not be controlled by One Central monetary authority – WACB. In the final analysis and conclusion, IBRD’s report proposed a state bank for Nigeria with somewhat limited functions
A few year after 1BRD’s report, J.B. Loyness, an adviser to the Bank of England, was asked by the colonial government to undertake a research study With the main objective of determining appropriate steps and methods of a establishing a Central Bank in Nigeria. Sir Loyness
undertook his research study within the framework of pre-stated guidelines and came up with a report in 1957. The report supported the establishment of a Central Bank in Nigeria but without limited
functions. This was because Loyness thought that a Central Bank was to be for all times and therefore its functions could not be limited the initial just because the initial conditions favoured such limited functions. Loyness’ report however culminated to the passing of a bill in the Parliament establishing the Central Bank of Nigeria. A Central Bank with limited functions did not cause any- concern to the Nigerian authorities because according to the Minister for Finance, the basic objectives of all monetary and financial authorities must be directed to facilitate at any time, the desired economic development. The statute of the Central Bank of Nigeria was passed in 1958 but the actual operations
of Central Bank started on 1st July, 1959. On that day, and for subsequent periods (determined and fixed by the CBN), the Bank successfully exchanged the then WACB currency in circulation With the legal tender currency of the Bank in the denomination of pounds (t), shillings and pennies. Since 1959, the Central Bank of Nigeria has progressively (through different forms of legislation) assumed the full responsibilities of monetary management in Nigeria.