As far back as 1948 (before the banking boom in Nigeria), Mr J. Mars drew attention to the desirability of having a central bank in Nigeria (Mar, 1948).
Following the failure of banks in the 950s, support for the establishment of the Central Bank of Nigeria grew. Many nationalists advocated the establishment of
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central bank to put in place regulations for the operation of banks and perform other functions related to central banking and the development of the economy.
The urge to set up a central bank was resisted for quite some time by the colonial administrators on the ground that there was no developed and highly organized money market. In 1952 the government of Nigeria requested Mr. J.l. Fisher, an advisor to the Bank of England, to report on the “desirability and practicability of establishing a central bank in Nigeria as an instrument of economic development”.
His report, which was published in 1953, contained the following:
1. An elaborate description of Central Banking as it had developed in England.
2. A review of Nigeria’s financial system as it then existed; and
3. The possibility of making use of the orthodox principles of central banking as contained in (1).
The main feature of the report was that it would be inadvisable to contemplate the establishment of a central bank at that time.
Besides, he found it hard to see how a central bank could be used to promote economic development. Instead Fisher proposed:
1. The transfer of the West African Currency Board to Nigeria.
2. The establishment of a Nigerian currency Board; and
3. The establishment of a Nigerian Bank of Issue, which would gradually evolve into a bank.
The fishers Report can be critized on several grounds (Olakunpo, 1965, pp, 38-41). First it erred too much on the side of conservatism by not recognizing the developmental role of a central bank.
Secondly, there was no time prefix attached to the commendation that a new bank of issue could gradually evolve into a central bank. Besides, it is not sure that the slow but sluggish conversion of a bank of issue into a central bank would meet the country’s monetary requirements.
Thirdly, in his orthodox approach to monetary problems, Fisher argued that it was better to build the financial structure from the base upwards rather than to build it from the top downwards. The question was “how developed must a financial structure be before establishment of a central bank? Fisher did not have an answer to this. He did not recognize that a central bank could aid and nurture the development of the financial structure.
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In 1953, the World Bank Mission visited Nigeria, the mission came out in support of Fisher’s views, but it felt that in view of the impending attainment of independence a state bank with limited functions should be established. The functions of such a bank could gradually be broadened to enable it to perform the functions of a central bank.
In 1954, soon after the Fisher report, Newlyn and Rowan’s views were published.
Their verdict was a qualified “yes” for the establishment of a central bank, for reasons opposite to Fisher’s. They concluded that there was little that a central bank of a developing country could do by way of stabilization. The only role for the central bank in such a situation was purely developmental.
Another adviser to the Bank of England, Mr Loynes in 1957 favoured the idea of establishing a Central Bank in Nigeria. It was his views and recommendations that formed the basis of the draft legislation for the establishment of the Central Bank in Nigeria which was presented to the House of Representatives in March 1958.
The Central Bank of Nigeria (hereafter referred to a CBN) came into being on July 1st, 1959 with an initial capital of seventeen million pounds.
The core mandate of the CBN, as spelt out in the Central Bank Act (1958), and amendments (1991, 1998) include:
1. Issuance of legal tender currency notes and coins in Nigeria
2. Maintenance of Nigeria external reserve to safeguard the international values of the legal currency.
3. Promotion and Maintenance of monetary stability and a sound and efficient financial system in Nigeria.
4. Acting as banker and financial adviser to the Federal Government; and 5. Acting as lender of last resort
Given this mandate, the CBN is also charged with responsibility for administering the Banks and other Financial institutions (BOF) Act (1991) as amended (1997 and 1998), with the sole aim of ensuring high standard of making practice and financial stability through its surveillance activities as well as the promotion of efficient payments and clearing system.
Self Assessment Exercise
Do you think the birth of Central Bank in Nigeria has brought better banking performance and supervision?
90 4.0. CONCLUSION
Base on what we have discussed in this unit, we have come to the conclusion that the Central Bank of a country is regarded as the apex regulatory institution of the financial system of the country. Accordingly, “a central bank is an institution charged with the responsibility of regulating the supply, availability and the cost of money in the interest of social welfare”, (Ajayi, 1995). It has authority over all other financial institutions in promoting financial stability and a sound financial system.
5.0. SUMMARY
In summary, I think you belief now that central banking in the world and in Nigeria has a lot to do in controlling the activities of the commercial banks.
Moreover, all over the world, government have taken necessary measures to ensure the integration of central banking more closely into the machinery for carrying out macroeconomic policy and for many countries; a central plays a key role in a country’s growth and development process.
6.0 Tutor-Marked Assignment
1. List and explain the functions of central bank of Nigeria.
2. List and explain the reforms of central bank since it inception of supervising the commercial bank in Nigeria.
3. Briefly explain how central bank controls commercial bank.
7.0 References/Further Readings
Ajayi S.I (1995) The Role of Central Banks in Economic Development, CBN Economic and Financial Review, Vol 33, No Allen and Unwin
Central Bank of Nigeria (1970) Amendment, No 3 Decree 1969 as amended by Banking Amendment Decree 1970.
Central Bank of Nigeria (1959) The Bye Laws of the CBN.
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MODULE FOUR: COMPONENTS OF GROSS DOMESTIC PRODUCT
Unit 1 Personal Consumption Expenditure
Unit 2 Gross Private Domestic investment and Net Exports Unit 3 Government Consumption and Gross investment.
UNIT 1 Personal Consumption Expenditure