The Central Bank of Nigeria (CBN) was established with a mandate that has evolved significantly since its inception in 1958. Its primary functions, as outlined in the CBN Act of 1958 and its subsequent amendments in 1991, 1993, 1997, 1998, 1999, and 2007, include the issuance of legal tender currency, which comprises both notes and coins, a function that forms the backbone of the nation’s monetary system. The authority to print and distribute currency is fundamental to ensuring that the economy has a reliable and consistent medium of exchange, enabling transactions across all levels of society. Over time, the CBN has maintained a critical role in controlling the money supply, which in turn influences inflation and economic stability.
In addition to its role in currency issuance, the CBN is tasked with maintaining Nigeria’s external reserves. This responsibility is crucial for safeguarding the international value of the national currency. By managing the country’s debt and foreign exchange, the CBN helps ensure that Nigeria can meet its international obligations and that the national currency remains stable in the global market. The maintenance of external reserves is not just a matter of financial prudence but also a strategic function that underpins the confidence of foreign investors and the international community in the Nigerian economy.
The promotion of monetary stability and a sound, efficient financial system is another core objective of the CBN. The bank is charged with formulating and implementing monetary and financial policies aimed at ensuring price stability, which is essential for sustainable economic growth and development. The interplay between price stability and financial sector soundness is a critical dynamic, as a stable macroeconomic environment is necessary to support a healthy financial system, while a robust financial system, in turn, enables effective monetary policy implementation. Through its policies, the CBN endeavors to create conditions under which both inflation and interest rates are kept at optimal levels, thereby promoting an environment conducive to economic investment and growth.
One of the unique aspects of the CBN’s mandate is its role as the banker and financial adviser to the Federal Government. In this capacity, the CBN provides strategic financial guidance, helping to shape economic policies and advising on fiscal matters. The bank’s advice is instrumental in ensuring that government policies align with the broader objectives of monetary stability and economic growth. Moreover, the CBN acts as a lender of last resort to banks, a function that is critical during times of financial distress. By providing emergency liquidity support, the CBN helps to prevent bank failures and systemic crises, thereby maintaining confidence in the banking system.
Over the years, the CBN’s powers have been considerably strengthened through legislative amendments. The amended CBN Act has granted the bank enhanced authority over the financial system, while the Banks and Other Financial Institutions Act (BOFIA), as amended, has further empowered the CBN to ensure high standards of financial practice and sustained financial stability. These legislative measures reflect the recognition that a well-regulated financial system is essential for economic stability and that the central bank must have the necessary tools to supervise and regulate banks and other financial institutions.
The CBN’s role in promoting a sound financial structure extends to its oversight of the payments and settlement systems within Nigeria. The bank is responsible for maintaining a robust current account for deposit money banks and providing efficient clearing facilities through which financial instruments are processed. Additionally, the CBN offers temporary accommodation to banks in its function as the lender of last resort, ensuring that financial institutions have the support they need during times of liquidity crises. These functions are vital for minimizing delays in financial transactions and for ensuring that the overall banking system operates smoothly and efficiently.
Beyond its traditional monetary functions, the CBN has played a developmental role in Nigeria’s economy, particularly in promoting the growth of financial markets. The bank has been instrumental in nurturing the money market through the introduction of various instruments such as treasury bills, treasury certificates, and eligible development stocks. By granting licenses to discount houses and select stockbrokers, the CBN has facilitated the trading of government securities, thereby deepening the market and encouraging investment. Similarly, in the capital market, the issuance of Federal Government Development Stocks has helped stimulate demand and accommodate the longer-term financial needs of the government. The CBN’s active role in the foreign exchange market has also been pivotal, with various reforms aimed at managing exchange rates within a deregulated financial environment, thereby stabilizing the value of the naira in global markets.
As part of its broader mandate, the CBN has been involved in establishing specialized financial institutions and funds aimed at channeling long-term financial resources to key sectors of the economy. These institutions include, among others, the Nigerian Agricultural and Cooperative Bank, the Agricultural Credit Guarantee Scheme (ACGS) established in 1977, the Nigerian Industrial Development Bank (NIDB), the Nigerian Bank for Commerce and Industry (NBCI), the Federal Mortgage Bank of Nigeria (FMBN), and the Urban Development Bank (UDB). In addition, the Nigerian Export-Import Bank (NEXIM) plays a crucial role in facilitating exports. Many of these institutions have undergone restructuring to enhance their effectiveness in delivering financial resources and advisory services, ensuring that they remain aligned with the developmental aspirations of the Nigerian economy.
One of the specific schemes promoted by the CBN is the Agricultural Credit Guarantee Scheme, which is designed to finance agricultural activities by guaranteeing a significant portion of bank loans to the sector. Given that Nigeria's economy remains predominantly agricultural, this scheme is critical for encouraging agricultural production and ensuring that farmers have access to the necessary credit. The authorized share capital of the ACGS has been increased significantly over time, reflecting the importance of supporting agricultural growth. Additionally, similar credit guarantee schemes are being designed for the industrial sector, further emphasizing the CBN’s commitment to promoting economic diversification.
In the realm of small and medium-scale enterprises (SMEs), the CBN, in collaboration with the Bankers Committee, has established the Small and Medium Industries Equity Investment Scheme (SMIEIS). Under this initiative, 10 percent of the profit before tax of every bank is set aside and channeled into equity investments in SMEs across various sectors such as agro-allied industries, information technology, manufacturing, education, tourism, and construction. This scheme is intended to nurture and support emerging businesses, thereby fostering innovation and contributing to overall economic growth. To ensure the effectiveness of SMIEIS, the CBN has undertaken various projects to facilitate the speedy utilization of resources set aside by banks, including commissioning baseline studies across universities to identify investment potentials in different geopolitical zones of Nigeria.
Another important aspect of the CBN's role is its management of the monetary policy through the use of both direct and indirect instruments. The bank has transitioned from an era of direct control and regulation to one of deregulation and liberalization, placing greater emphasis on market-based approaches such as Open Market Operations (OMO). Since 1993, OMO has been the dominant tool for liquidity management, with instruments like discount rates and reserve requirements serving as key levers for controlling the money supply. The CBN introduced daily OMOs in November 2003 to enhance liquidity management, thereby ensuring that inter-bank rates remain within desired ranges. This approach promotes competition, optimizes resource allocation, and ensures that the cost of capital is reflective of its scarcity.
The CBN's policy framework also encompasses the issuance of its own monetary instruments, such as the CBN certificate, which can be deployed in times of need. At the behest of the bank, the Federal Government approved the National Savings Certificate (NSC), a savings instrument designed to complement the bank’s efforts in promoting domestic savings and addressing excess liquidity in the banking system. Recognizing that monetary policy impacts the economy with a substantial lag, the CBN adopted a medium-term framework for conducting monetary policy in 2002, shifting from an annual to a two-year program to mitigate the effects of temporary shocks and time inconsistency.
The reform of the payments system is another critical function managed by the CBN. The bank established several clearing houses to facilitate the processing of cheques among clearing banks and introduced modern technologies such as Magnetic Ink Character Recognition (MICR) to streamline payment processing. The Nigeria Inter-Bank Settlement System (NIBSS), established in 1994 with the CBN as chairman of the Bankers Committee, plays a pivotal role in enabling instant inter-bank transfers and providing a courier system for financial instruments. These initiatives aim to minimize bottlenecks and reduce settlement delays, ensuring that high-value transfers and payments are processed on the same day. The installation of the Real Time Gross Settlement System (RTGS) and the introduction of the Enhanced Transfer Module for large-value transfers further underscore the CBN’s commitment to creating a safe, stable, and efficient payments environment.
In its oversight of the financial sector, the CBN is empowered by provisions in the CBN Act, BOFIA, and the bank’s Monetary Policy Guidelines. These regulatory frameworks govern the operations of financial institutions to ensure they conform with Nigeria’s socio-economic aspirations. The guidelines cover various aspects, including licensing, fitness and properness of promoters, limits on insider loans, and measures to combat money laundering and fraud. The CBN also sets minimum capital requirements and prudential guidelines to ensure the safety and soundness of financial institutions. Through periodic on-site examinations and off-site surveillance, the CBN monitors compliance with these standards, ensuring robust internal controls and the reliability of financial data. The establishment of a Credit Risk Management System (CRMS) further enhances the bank's ability to collect returns on credit from deposit money banks and disseminate this information to interested parties.
Furthermore, the CBN has played an essential role in resolving financial distress within the banking sector. Over the years, various distress resolution measures have been adopted, including the takeover of problem banks and the outright liquidation of licenses for defunct banks between 1994 and 2003. More recently, the authorities have explored mergers and acquisitions as a restructuring mechanism, encouraging healthy banks to absorb the assets and liabilities of weaker ones, thereby ensuring continuity in the provision of banking services and maintaining public confidence.
The CBN’s mandate also extends to fostering the development of the financial markets, including money, capital, and foreign exchange markets. By nurturing the money market through the issuance of instruments such as treasury bills and certificates, and by granting licenses to discount houses and stockbrokers, the CBN has deepened the market and stimulated investment. The issuance of Federal Government Development Stocks has similarly boosted the capital market, facilitating long-term financing for the government’s projects. As a major player in the foreign exchange market, the CBN has implemented various reforms to manage exchange rates in a deregulated environment, stabilizing the national currency and attracting foreign investment.
Over time, the CBN has acted as a catalyst for economic development by establishing institutional frameworks that facilitate the intermediation of financial resources for productive investment. The bank has been instrumental in setting up specialized financial institutions and schemes that support key sectors such as agriculture, industry, residential housing, urban development, and exports. Many of these institutions, such as the Nigerian Agricultural and Cooperative Bank, the Agricultural Credit Guarantee Scheme, the Nigerian Industrial Development Bank, the Nigerian Bank for Commerce and Industry, the Federal Mortgage Bank of Nigeria, and the Nigerian Export-Import Bank, have been restructured to better serve their roles in channeling long-term resources to the economy.
In addition to these developmental roles, the CBN also collaborates with industry stakeholders through the Bankers Committee and supports self-regulatory organizations such as the Chartered Institute of Bankers of Nigeria, the Money Market Association of Nigeria, and the Institute of Chartered Accountants of Nigeria. These collaborations help establish codes of conduct and ensure that the financial sector adheres to high standards of professionalism. The CBN’s continuous monitoring of banks’ internal controls and adherence to uniform accounting standards is crucial for safeguarding assets, ensuring operational efficiency, and enhancing the overall reliability of financial information.
The extensive functions of the Central Bank of Nigeria highlight its critical role in maintaining macroeconomic stability and promoting sustainable economic growth. By controlling the money supply, managing external reserves, and enforcing regulatory standards, the CBN provides a stable foundation upon which Nigeria’s financial and economic systems can flourish. Its ability to formulate and implement monetary policy, coupled with its oversight of the payments system and financial markets, ensures that Nigeria’s economy remains resilient in the face of both domestic and global challenges. The comprehensive mandate of the CBN, derived from the CBN Act and BOFIA, underscores the importance of maintaining a sound financial system, which in turn is essential for the long-term prosperity of the nation.
In addition to its role in currency issuance, the CBN is tasked with maintaining Nigeria’s external reserves. This responsibility is crucial for safeguarding the international value of the national currency. By managing the country’s debt and foreign exchange, the CBN helps ensure that Nigeria can meet its international obligations and that the national currency remains stable in the global market. The maintenance of external reserves is not just a matter of financial prudence but also a strategic function that underpins the confidence of foreign investors and the international community in the Nigerian economy.
The promotion of monetary stability and a sound, efficient financial system is another core objective of the CBN. The bank is charged with formulating and implementing monetary and financial policies aimed at ensuring price stability, which is essential for sustainable economic growth and development. The interplay between price stability and financial sector soundness is a critical dynamic, as a stable macroeconomic environment is necessary to support a healthy financial system, while a robust financial system, in turn, enables effective monetary policy implementation. Through its policies, the CBN endeavors to create conditions under which both inflation and interest rates are kept at optimal levels, thereby promoting an environment conducive to economic investment and growth.
One of the unique aspects of the CBN’s mandate is its role as the banker and financial adviser to the Federal Government. In this capacity, the CBN provides strategic financial guidance, helping to shape economic policies and advising on fiscal matters. The bank’s advice is instrumental in ensuring that government policies align with the broader objectives of monetary stability and economic growth. Moreover, the CBN acts as a lender of last resort to banks, a function that is critical during times of financial distress. By providing emergency liquidity support, the CBN helps to prevent bank failures and systemic crises, thereby maintaining confidence in the banking system.
Over the years, the CBN’s powers have been considerably strengthened through legislative amendments. The amended CBN Act has granted the bank enhanced authority over the financial system, while the Banks and Other Financial Institutions Act (BOFIA), as amended, has further empowered the CBN to ensure high standards of financial practice and sustained financial stability. These legislative measures reflect the recognition that a well-regulated financial system is essential for economic stability and that the central bank must have the necessary tools to supervise and regulate banks and other financial institutions.
The CBN’s role in promoting a sound financial structure extends to its oversight of the payments and settlement systems within Nigeria. The bank is responsible for maintaining a robust current account for deposit money banks and providing efficient clearing facilities through which financial instruments are processed. Additionally, the CBN offers temporary accommodation to banks in its function as the lender of last resort, ensuring that financial institutions have the support they need during times of liquidity crises. These functions are vital for minimizing delays in financial transactions and for ensuring that the overall banking system operates smoothly and efficiently.
Beyond its traditional monetary functions, the CBN has played a developmental role in Nigeria’s economy, particularly in promoting the growth of financial markets. The bank has been instrumental in nurturing the money market through the introduction of various instruments such as treasury bills, treasury certificates, and eligible development stocks. By granting licenses to discount houses and select stockbrokers, the CBN has facilitated the trading of government securities, thereby deepening the market and encouraging investment. Similarly, in the capital market, the issuance of Federal Government Development Stocks has helped stimulate demand and accommodate the longer-term financial needs of the government. The CBN’s active role in the foreign exchange market has also been pivotal, with various reforms aimed at managing exchange rates within a deregulated financial environment, thereby stabilizing the value of the naira in global markets.
As part of its broader mandate, the CBN has been involved in establishing specialized financial institutions and funds aimed at channeling long-term financial resources to key sectors of the economy. These institutions include, among others, the Nigerian Agricultural and Cooperative Bank, the Agricultural Credit Guarantee Scheme (ACGS) established in 1977, the Nigerian Industrial Development Bank (NIDB), the Nigerian Bank for Commerce and Industry (NBCI), the Federal Mortgage Bank of Nigeria (FMBN), and the Urban Development Bank (UDB). In addition, the Nigerian Export-Import Bank (NEXIM) plays a crucial role in facilitating exports. Many of these institutions have undergone restructuring to enhance their effectiveness in delivering financial resources and advisory services, ensuring that they remain aligned with the developmental aspirations of the Nigerian economy.
One of the specific schemes promoted by the CBN is the Agricultural Credit Guarantee Scheme, which is designed to finance agricultural activities by guaranteeing a significant portion of bank loans to the sector. Given that Nigeria's economy remains predominantly agricultural, this scheme is critical for encouraging agricultural production and ensuring that farmers have access to the necessary credit. The authorized share capital of the ACGS has been increased significantly over time, reflecting the importance of supporting agricultural growth. Additionally, similar credit guarantee schemes are being designed for the industrial sector, further emphasizing the CBN’s commitment to promoting economic diversification.
In the realm of small and medium-scale enterprises (SMEs), the CBN, in collaboration with the Bankers Committee, has established the Small and Medium Industries Equity Investment Scheme (SMIEIS). Under this initiative, 10 percent of the profit before tax of every bank is set aside and channeled into equity investments in SMEs across various sectors such as agro-allied industries, information technology, manufacturing, education, tourism, and construction. This scheme is intended to nurture and support emerging businesses, thereby fostering innovation and contributing to overall economic growth. To ensure the effectiveness of SMIEIS, the CBN has undertaken various projects to facilitate the speedy utilization of resources set aside by banks, including commissioning baseline studies across universities to identify investment potentials in different geopolitical zones of Nigeria.
Another important aspect of the CBN's role is its management of the monetary policy through the use of both direct and indirect instruments. The bank has transitioned from an era of direct control and regulation to one of deregulation and liberalization, placing greater emphasis on market-based approaches such as Open Market Operations (OMO). Since 1993, OMO has been the dominant tool for liquidity management, with instruments like discount rates and reserve requirements serving as key levers for controlling the money supply. The CBN introduced daily OMOs in November 2003 to enhance liquidity management, thereby ensuring that inter-bank rates remain within desired ranges. This approach promotes competition, optimizes resource allocation, and ensures that the cost of capital is reflective of its scarcity.
The CBN's policy framework also encompasses the issuance of its own monetary instruments, such as the CBN certificate, which can be deployed in times of need. At the behest of the bank, the Federal Government approved the National Savings Certificate (NSC), a savings instrument designed to complement the bank’s efforts in promoting domestic savings and addressing excess liquidity in the banking system. Recognizing that monetary policy impacts the economy with a substantial lag, the CBN adopted a medium-term framework for conducting monetary policy in 2002, shifting from an annual to a two-year program to mitigate the effects of temporary shocks and time inconsistency.
The reform of the payments system is another critical function managed by the CBN. The bank established several clearing houses to facilitate the processing of cheques among clearing banks and introduced modern technologies such as Magnetic Ink Character Recognition (MICR) to streamline payment processing. The Nigeria Inter-Bank Settlement System (NIBSS), established in 1994 with the CBN as chairman of the Bankers Committee, plays a pivotal role in enabling instant inter-bank transfers and providing a courier system for financial instruments. These initiatives aim to minimize bottlenecks and reduce settlement delays, ensuring that high-value transfers and payments are processed on the same day. The installation of the Real Time Gross Settlement System (RTGS) and the introduction of the Enhanced Transfer Module for large-value transfers further underscore the CBN’s commitment to creating a safe, stable, and efficient payments environment.
In its oversight of the financial sector, the CBN is empowered by provisions in the CBN Act, BOFIA, and the bank’s Monetary Policy Guidelines. These regulatory frameworks govern the operations of financial institutions to ensure they conform with Nigeria’s socio-economic aspirations. The guidelines cover various aspects, including licensing, fitness and properness of promoters, limits on insider loans, and measures to combat money laundering and fraud. The CBN also sets minimum capital requirements and prudential guidelines to ensure the safety and soundness of financial institutions. Through periodic on-site examinations and off-site surveillance, the CBN monitors compliance with these standards, ensuring robust internal controls and the reliability of financial data. The establishment of a Credit Risk Management System (CRMS) further enhances the bank's ability to collect returns on credit from deposit money banks and disseminate this information to interested parties.
Furthermore, the CBN has played an essential role in resolving financial distress within the banking sector. Over the years, various distress resolution measures have been adopted, including the takeover of problem banks and the outright liquidation of licenses for defunct banks between 1994 and 2003. More recently, the authorities have explored mergers and acquisitions as a restructuring mechanism, encouraging healthy banks to absorb the assets and liabilities of weaker ones, thereby ensuring continuity in the provision of banking services and maintaining public confidence.
The CBN’s mandate also extends to fostering the development of the financial markets, including money, capital, and foreign exchange markets. By nurturing the money market through the issuance of instruments such as treasury bills and certificates, and by granting licenses to discount houses and stockbrokers, the CBN has deepened the market and stimulated investment. The issuance of Federal Government Development Stocks has similarly boosted the capital market, facilitating long-term financing for the government’s projects. As a major player in the foreign exchange market, the CBN has implemented various reforms to manage exchange rates in a deregulated environment, stabilizing the national currency and attracting foreign investment.
Over time, the CBN has acted as a catalyst for economic development by establishing institutional frameworks that facilitate the intermediation of financial resources for productive investment. The bank has been instrumental in setting up specialized financial institutions and schemes that support key sectors such as agriculture, industry, residential housing, urban development, and exports. Many of these institutions, such as the Nigerian Agricultural and Cooperative Bank, the Agricultural Credit Guarantee Scheme, the Nigerian Industrial Development Bank, the Nigerian Bank for Commerce and Industry, the Federal Mortgage Bank of Nigeria, and the Nigerian Export-Import Bank, have been restructured to better serve their roles in channeling long-term resources to the economy.
In addition to these developmental roles, the CBN also collaborates with industry stakeholders through the Bankers Committee and supports self-regulatory organizations such as the Chartered Institute of Bankers of Nigeria, the Money Market Association of Nigeria, and the Institute of Chartered Accountants of Nigeria. These collaborations help establish codes of conduct and ensure that the financial sector adheres to high standards of professionalism. The CBN’s continuous monitoring of banks’ internal controls and adherence to uniform accounting standards is crucial for safeguarding assets, ensuring operational efficiency, and enhancing the overall reliability of financial information.
The extensive functions of the Central Bank of Nigeria highlight its critical role in maintaining macroeconomic stability and promoting sustainable economic growth. By controlling the money supply, managing external reserves, and enforcing regulatory standards, the CBN provides a stable foundation upon which Nigeria’s financial and economic systems can flourish. Its ability to formulate and implement monetary policy, coupled with its oversight of the payments system and financial markets, ensures that Nigeria’s economy remains resilient in the face of both domestic and global challenges. The comprehensive mandate of the CBN, derived from the CBN Act and BOFIA, underscores the importance of maintaining a sound financial system, which in turn is essential for the long-term prosperity of the nation.
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