The Impact of Central Banking Legislation on the Economic Growth of Commonwealth African Countries With Particular Reference to Nigeria.

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A B S T R A C T O F T H E T H E S I S T h e p u r p o s e of t h i s T h e s i s is t o i n v e s t i g a t e w h e t h e r t h e r e is r e a l n e e d fo r t h e s e l e c t e d a n g l o p h o n e A f r i c a n c o u n t r i e s : N i g e r i a , K e n y a , T a n z a n i a a n d Z a m b i a , t o h a v e a c e n t r a l b a n k in t h e i r c o u n t r i e s a n d w h e t h e r t h e y s h o u l d be a u t o n o m o u s i n s t i t u t i o n s or a r m s of g o v e r n m e n t s a n d w h e t h e r in t h e i r r o l e as t h e a p e x b a n k i n g i n s t i t u t i o n s t h e s e b a n k s as w e l l as t h e a p p l i c a b l e laws h a v e e f f e c  t i v e l y p r o m o t e d e c o n o m i c s t a b i l i t y a n d g r o w t h o r r e v e r s e . T h e t h e s i s , in it s t e n c h a p t e r s , s u r v e y s t h e h i s  t o r i c a l d e v e l o p m e n t of m o n e y in A f r i c a ; d e v e l o p m e n t s in b a n k i n g a n d c e n t r a l b a n k i n g b e f o r e a n d a f t e r t h e a d v e n t „o£ c o l o n i a l i s m sin these*, countries*. *, *, >, ** ** ** *, ** *, >, *, *, *. **

It e x a m i n e d t h e l e g a l s t r u c t u r e s of t h e s e b a n k s ; t r a c e d t h e s o u r c e s of t h e i r o r g a n i c a n d s u b s i d i a r y la w s a nd i d e n t i f i e d t h e o b j e c t i v e s of l e g i s l a t i o n as s e e n b y the n a t i o n a l i s t s of t h e s e c o u n t r i e s b e f o r e p o l i t i c a l i n d e p e n d e n c e . T h e t h e s i s a l s o s o u g h t to e s t a b l i s h w h e t h e r g o v e r n m e n t r e p r e s e n t a t i o n on th e b o a r d s ; s u b o r d i n a t i o n of t h e s e b a n k s to g o v e r n m e n t s ; p o l i t i c a l a p p o i n t m e n t s of th e g o v e r n o r s a n d b o a r d m e m b e r s h a d i m p e d e d or e n h a n c e d e c o n o m i c d e v e l o p m e n t in t h e c o u n t r i e s ; a n d w h e t h e r t he lack of f u n c t i o n a l q u a l i f i c a t i o n s of b o a r d m e m b e r s a n d t he u s e or l a c k o f u s e of t h e i m p l i e d p o w e r s of t h e b o a r d s h a d an y i m p a c t on t h e p e r f o r m a n c e s of th e b a n k s . T h e s e r v i c e , d e v e l o p m e n t a l , m o n e t a r y m a n a g e m e n t a n d o t h e r f u n c t i o n s of c e n t r a l b a n k s and t h e i r p e r f o r m a n c e s in

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t h e s e f u n c t i o n s w e r e c r i t i c a l l y e x a m i n e d . T h e b r o a d c o n c l u s i o n is t h a t a m o n e t a r y a u t h o r i t y b e it an a s s o c i a t i o n o f c o m m e r c i a l b a n k s as in H o n g K o ng , is n e c e s s a r y a n d d e s i r a b l e in an e c o n o m y b u t t h e p a t t e r n of o r g a n i s a t i o n of c e n t r a l b a n k i n g in a d v a n c e d c o u n t r i e s is n o t w e l l a d a p t e d t o t h e n e e d s a n d c i r c u m s t a n c e s of t h e c o u n t r i e s s u r v e y e d . M a n y f a r - r e a c h i n g r e f o r m s h a v e b e e n p r o p o s e d w h i c h w o u l d m a t c h t h e l e v e l of d e v e l o p m e n t of t h e s e c o u n t r i e s a n d u l t i m a t e l y c o n d u c e , it is h o p e d , to p r o g r e s s i v e e c o n o m i c g r o w t h . T h e C e n t r a l B a n k of N i g e r i a w a s t h e m o d e l .

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T A B L E O F C O N T E N T S P a g e C H A P T E R 1 H I S T O R Y O F C E N T R A L B A N K I N G IN A F R I C A 12 D e f i n i t i o n a n d S c o p e 12 Is t h e C o n c e p t of C e n t r a l B a n k i n g U n A f r i c a n 16 H i s t o r i c a l D e v e l o p m e n t o f M o n e y 20 T h e P r o b l e m s of B a r t e r 25 T h e S e a r c h f o r a S t a n d a r d of V a l u e : T h e E m e r g e n c e of M o n e y 26 A f r i c a a n d M o n e y 32 O t h e r P r e - C o i n a g e C u r r e n c i e s 3 9 T h e C o m i n g of C o i n s a n d N o t e s -H i s t o r i c a l D e v e l o p m e n t 40 K i n d s of P o s t - C o i n a g e M o n e y U s e d in A f r i c a 42 T h e E m e r g e n c e of B a n k i n g 4 4 T h e T r a n s a c t i o n s of t h e G o l d s m i t h s 4 9 C H A P T E R 2 C E N T R A L B A N K I N G IN A N G L O P H O N E A F R I C A : A N H I S T O R I C A L D E V E L O P M E N T 52 T h e E m e r g e n c e of C e n t r a l B a n k i n g 52 C e n t r a l B a n k i n g in t h e C o l o n i a l E r a 56 T h e L e g i s l a t i v e a n d E x e c u t i v e L i n k s 63 T h e C u r r e n c y B o a r d s - t h e P r e c u r s o r s of C e n t r a l B a n k s 6 8 T h e W e s t A f r i c a n C u r r e n c y B o a r d 74 T h e E a s t A f r i c a n C u r r e n c y B o a r d 80 T h e I m p a c t of C u r r e n c y B o a r d s L e g i s l a t i o n on t h e E c o n o m i e s 8 3 T h e C o m i n g of t h e C o m m e r c i a l B a n k s in A f r i c a 89 T h e T r a d i t i o n a l B a n k s 89 T h e C o m m e r c i a l B a n k s 94 T h e C o m i n g of I n d i g e n o u s B a n k s 97 T h e C o m i n g of C o m m e r c i a l B a n k s in E a s t A f r i c a 104 I n d i g e n o u s B a n k s in E a s t A f r i c a 106

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F e a t u r e s of t h e B a n k i n g S y s t e m b e f o r e t h e C o m i n g o f C e n t r a l B a n k s E s t a b l i s h m e n t of C e n t r a l B a n k s in C o m m o n w e a l t h A f r i c a C e n t r a l B a n k of N i g e r i a C H A P T E R 3 O B J E C T I V E S OF C E N T R A L B A N K I N G L E G I S L A T I O N S c o p e a n d S o u r c e s of L e g i s l a t i o n S o u r c e s B a n k D o m e s t i c L a w S u b s i d i a r y D o m e s t i c L a w S o u r c e s C u s t o m a r y L a w R e c e i v e d E n g l i s h S t a t u t e s B a s i c I n t e r n a t i o n a l L a w S o u r c e s T h e G e n e r a l E c o n o m i c a n d S o c i a l O b j e c t i v e s S e t b y G o v e r n m e n t

, M a t t e r s , tha,t . I n f l u e n c e d Setting, o f .the. O b j e c t i v e s . . T h e O b j e c t i v e s S e t b y G o v e r n m e n t f o r E s t a b l i s h i n g C e n t r a l B a n k s S p e c i f i c O b j e c t i v e s of C e n t r a l B a n k L a w T o C u r b t h e M o n o p o l y of B a n k s T h r o u g h L e g i s l a t i o n P o l i t i c a l A d v a n t a g e s T o F a c i l i t a t e I n t e r n a t i o n a l C o - o p e r a t i o n U n s a t i s f a c t o r y S y s t e m of N o t e I s s u e I n t e r n a t i o n a l F i n a n c i a l C o n f e r e n c e 1920 I n d i g e n i s a t i o n of t h e B a n k s L i c e n s i n g o f B a n k s O b l i g a t i o n s b y t h e C e n t r a l B a n k P o w e r of R e f o r m ✓ C H A P T E R 4 T H E L E G A L S T R U C T U R E OF C E N T R A L B A N K S P a g e 108 110 114 125 125 128 129 131 132 138 146 154 "1 54" * 164 174 174 177 178 179 181 186 198 199 201 206 S c o p e T h e B o a r d o f D i r e c t o r s M e m b e r s h i p 206 207 208

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P a g e T e r m s of A p p o i n t m e n t , E l i g i b i l i t y & T e n u r e 221 I n d e p e n d e n c e a n d A u t o n o m y of C e n t r a l B a n k s 226 A p p o i n t m e n t o f G o v e r n o r a n d M e m b e r s of th e B o a r d 23 3 G o v e r n m e n t R e p r e s e n t a t i o n o n t h e B o a r d 234 P o w e r of G o v e r n m e n t to I s s u e D i r e c t i v e s to C e n t r a l B a n k s a n d t o R e s o l v e C o n f l i c t s 237 G o v e r n m e n t - A c c e l e r a t e d D e v e l o p m e n t P r o g r a m m e s 23 9 C o n c u r r e n t P o w e r s of t h e B o a r d a n d t h e G o v e r n o r 24 0 T h e I n h e r e n t o r I m p l i e d P o w e r s o f t h e B o a r d 241 D e p a r t m e n t a l S t r u c t u r a l O r g a n i s a t i o n of C e n t r a l B a n k s 248 G e o g r a p h i c a l O r g a n i s a t i o n 253 S t a f f M a n a g e m e n t a n d W e l f a r e 254 C e n t r a l B a n k i n g in a F e d e r a l S t a t e 264 C H A P T E R 5 S E R V I C E F U N C T I O N S O F C E N T R A L B A N K S 2 75 S c o p e 275 . I s s u i n g o f C u r r e n c y * ... * - •< ■> ^ ■> •> ■> * - - - 275 ■> M o n e y S u p p l y a n d C u r r e n c y E x c h a n g e 279 L e g a l T e n d e r S t a t u s 290 B a n k of Z a m b i a I s s u e s 293 C e n t r a l B a n k of N i g e r i a N o t e I s s u e s 296 T h e I m p a c t on t h e E c o n o m y of t h e C h a n g e s in t h e L e g a l T e n d e r S t a t u s of t h e I s s u e s 298 A p p r a i s a l of t h e N o t e I s s u i n g F u n c t i o n 304 M a n a g e m e n t of P u b l i c D e b t 307 T r e a s u r y B i l l s 310 T r e a s u r y B i l l s a n d S e c u r i t i e s I n s t r u m e n t s in T a n z a n i a 315 T r e a s u r y C e r t i f i c a t e s 323 D e v e l o p m e n t S t o c k s 325 F i n a n c i a l A d v i s e r to G o v e r n m e n t 326 B a n k e r to G o v e r n m e n t 32 9 C H A P T E R 6 D E V E L O P M E N T A L F U N C T I O N S O F C E N T R A L B A N K S 33 3 T h e F i n a n c i a l M a r k e t s 333

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T h e M o n e y M a r k e t P a g e 335 O b j e c t i v e s of S e t t i n g U p of M o n e y M a r k e t s 337 T h e M o n e y M a r k e t in N i g e r i a 341 A n A p p r a i s a l of t h e N i g e r i a n M o n e y M a r k e t 344 T h e C a p i t a l M a r k e t 351 O b j e c t i v e s f o r t h e E s t a b l i s h m e n t of C a p i t a l M a r k e t s in A n g l o p h o n e A f r i c a 352 C o m p o s i t i o n of t h e C a p i t a l M a r k e t 354 T h e S t o c k E x c h a n g e 355 T h e F u n c t i o n s of S t o c k E x c h a n g e 356 D i r e c t I s s u e o r O f f e r f o r S u b s c r i p t i o n s 358 S t o c k E x c h a n g e in E a s t A f r i c a 359 S t o c k E x c h a n g e in K e n y a 360 S t o c k E x c h a n g e in Z a m b i a 363 S t o c k E x c h a n g e in T a n z a n i a 364 T h e L a g o s S t o c k E x c h a n g e 365 T h e N i g e r i a n S e c u r i t i e s a n d E x c h a n g e C o m m i s s i o n 372 T h e S e c u r i t i e s a n d E x c h a n g e C o m m i s s i o n 374 A p p r a i s a l of t h e N i g e r i a n S e c u r i t i e s M a r k e t 375 S b g g e s ' t e d ' I m p r o v e m e n t s 3 7 7 C H A P T E R 7 S E R V I C E F U N C T I O N S T O C O M M E R C I A L B A N K S 38 2 B a n k i n g S u p e r v i s i o n 382 S u p e r v i s i o n P h i l o s o p h y 384 O b j e c t i v e s of B a n k i n g S u p e r v i s i o n 388 T e c h n i q u e s of B a n k S u p e r v i s i o n 392 E x a m i n a t i o n a t t h e B r a n c h e s 397 M e t h o d s of E n f o r c i n g P o l i c i e s a n d C o r r e c t i n g V i o l a t i o n s 399 A p p r a i s a l of B a n k i n g S u p e r v i s i o n 401 I n t e r - B a n k C l e a r i n g 40 5 C a l l M o n e y F u n d 408 R u r a l B a n k i n g 4 09 A g r i c u l t u r a l C r e d i t G u a r a n t e e S c h e m e 4 14 R e c o m m e n d a t i o n s 4 26

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P a g e C H A P T E R 8 M O N E T A R Y M A N A G E M E N T F U N C T I O N S 4 34 T e c h n i q u e s of M o n e t a r y M a n a g e m e n t 4 34 O p e n M a r k e t O p e r a t i o n s 4 34 D i s c o u n t R a t e M e c h a n i s m 4 37 D i r e c t R e g u l a t i o n of I n t e r e s t R a t e s 4 38 S p e c i a l D e p o s i t s a n d S t a b i l i s a t i o n S e c u r i t i e s 440 A p p r a i s a l o f t h e U s e o f t h e M o n e t a r y T o o l s 44 5 E x c h a n g e C o n t r o l 4 50 O b j e c t i v e s of E x c h a n g e C o n t r o l 4 50 E x c h a n g e C o n t r o l T e c h n i q u e s 4 52 H i s t o r i c a l D e v e l o p m e n t o f E x c h a n g e C o n t r o l in N i g e r i a 453 A d m i n i s t r a t i o n o f E x c h a n g e C o n t r o l in N i g e r i a 4 56 O b l i g a t i o n s U n d e r t h e E x c h a n g e C o n t r o l A c t 1962 4 59 I m p a c t o f t h e E x c h a n g e C o n t r o l A c t 1962 o n t h e E c o n o m y 4 60 O t h e r M e a s u r e s of C o n t r o l 467 A s s e s s m e n t of t h e E x c h a n g e C o n t r o l S y s t e m in N i g e r i a 469

" S u g g e s t i o n s "as "to ko"w"to "improve the "System "ot

E x c h a n g e C o n t r o l 4 75 C H A P T E R 9 G A P S IN T H E F I N A N C I A L S Y S T E M 4 78 T h e R o l e s of D e v e l o p m e n t B a n k s a n d N o n - B a n k i n g I n s t i t u t i o n s 479 N o n - B a n k F i n a n c i a l I n s t i t u t i o n s in E a s t A f r i c a 479 N i g e r i a n F i n a n c i a l H o u s e s 487 T h e N i g e r i a n I n d u s t r i a l D e v e l o p m e n t B a n k 488 T h e P e r f o r m a n c e of N I D B 489 T h e N i g e r i a n B a n k f o r C o m m e r c e a n d I n d u s t r y L t d (NBCI) 493 A p p r a i s a l of t h e O p e r a t i o n s of t h e N B C I 4 94 T h e F e d e r a l M o r t g a g e B a n k 4 98 P e r f o r m a n c e o f t h e M o r t g a g e B a n k 4 99 T h e N i g e r i a n A g r i c u l t u r a l a n d C o - o p e r a t i v e B a n k 4 99 C a u s e s of I n e f f e c t i v e n e s s of D e v e l o p m e n t B a n k s 503 O t h e r N o n - B a n k N o n - F i n a n c i a l H o u s e s 506 C e n t r a l B a n k i n g in a M i l i t a r y R e g i m e 510

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C H A P T E R 10 524 P A R T 1 S u m m a r y o f F i n d i n g s 525 P A R T 2 C o n c l u s i o n s 544 T h e N e e d fo r a C e n t r a l B a n k 545 H o n g K o n g - T h e O t h e r V i e w 546 S h o u l d C e n t r a l B a n k s be A u t o n o m o u s ? 551 Is C o - o p e r a t i o n w i t h t h e F i n a n c i a l I n s t i t u t i o n s N e c e s s a r y ? 553 Is C e n t r a l B a n k E x t e r n a l R o l e E s s e n t i a l fo r E c o n o m i c S u r v i v a l ? 554 H a s t h e L a w F a i l e d t o P r o m o t e E c o n o m i c S t a b i l i t y a n d G r o w t h ? 556 S u b m i s s i o n s 561 P A R T 3 R e c o m m e n d e d R e f o r m s 567 E P I L O G U E 592 T A B L E O F C A S E S 597 T A B L E O F S T A T U T E S 599 B I B L I O G R A P H Y 604 A C K N O W L E D G E M E N T S 610 A P P E N D I X A p p e n d i x I C e n t r a l B a n k of N i g e r i a A c t , 1958 612 A p p e n d i x II B a n k o f N i g e r i a B y - L a w s 1959 640 A p p e n d i x III N i g e r i a , B a n k i n g Act, 1969 647 A p p e n d i x IV W e s t A f r i c a n C u r r e n c y B o a r d C o n s t i t u t i o n 694 A p p e n d i x V E a s t A f r i c a n C u r r e n c y B o a r d C o n s t i t u t i o n 699

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Table Page

Chapter 1

1 Independent States in Africa 57

2 Banks that Operated in Nigeria sincce 1890 1

3 Expatriate and other Personnel who Served in CBN 119

Chapter 3

4 Central Banks in Independent- Countiries 182

Chapter 4

5 Bank Density 268

6 Suggested Zonal Boards 270

7 Organisation Charts 272

Chapter 5

8 Money Supply and its Determinants 281

9 Tanzania Monetary Survey 283

10 Zambia Money and Quasi-Money 284

11 Holdings of Outstanding Treasury Biills in Nigeria 314

12 Government Borrowing from Banks: Taanzania 316

13 Treasury Bills in Tanzania 317

14 Banking Organisation in Certain Coumtries 321

Chapter 6

15 Nairobi Stock Exchange 363

16 Growth of the Nigerian Stock Exchange 367

17 Allotment of Government Stocks in Niigeria 368

18 Structure of Interest Rates 369

Chapter 7

19 Rate of Growth of the Clearing Syst<em 407

20 Analysis of Rural and Urban Bank Branches

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Table 21 22 23

24

25 26 27 28 29 30 31 32 33 34 35 36 37 38 39

Analysis of Deposits and Loans and Advances of Rural Branches as at 30th September 1983 Nigeria: Export of Principal Products

Production of Major Crops and Livestock

in Nigeria from 1960-1980 (crops in ’000 Tonnes) Food Importation in Nigeria

Rice Importation in Nigeria Chapter 8

Percentage of the Compulsory Advance Deposits on Categories of Imports

Cash Reserve Ratios to be Maintained by Banks in Categories (A)

Cash Reserve Ratios to be Maintained by Banks in Categories (B)

Foreign Exchange Approving Authorities

Nigeria’s Level of External Reserves in Relation v to Imports and Balance of - payments 1960-el979 » s * * Foreign Exchange Expenditure 1975-1979 (N Million) Chapter 9

Financial Institutions in Tanzania

The Nigerian Industrial Development Bank: Operations 1964-1977

NIDB Ltd: Amount of Investments Approved (N m) Nigerian Bank for Commerce and Industry Sub-

sectoral Sanctions as at 6 February 1976 (cumulative) NACB: Commitments by Type of Client,

August 1973 - May 1977

NACB: Volume of Business by Type of Projects, August 1973 - May 1977

NACB: Operations 1974-1979

Net Premiums Written by Nigerian Insurance Companies (1960-1973) (thousand Naira)

Types of Government in Sub Saharan Africa

Page 413 415 419 420 441 444 445 457 v v463 v 464 485 490 491 496 501 501 502 505 511

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C H A P T E R 1 H I S T O R Y OF C E N T R A L B A N K I N G IN A F R I C A D E F I N I T I O N A N D S C O P E " L e t m e f i r s t say, then, w h a t I m e a n b y a C e n t r a l B a n k . It is a b a n k w h i c h ha s t h e s o l e r i g h t of l e g a l t e n d e r n o t e issue; it is t h e b a n k e r for t h e G o v e r n m e n t a n d t h e c o m m e r c i a l b a n k s ; it h a s th e p o w e r to s e l l a n d t o b u y b i l l s a n d s e c u r i t y . . . it has t h e m a j o r r e s p o n s i b i l i t y for s a f e  g u a r d i n g t h e v a l u e o f t h e c u r r e n c y. . . " 1 Mr. J.L. F i s h e r , an a d v i s e r to t h e B a n k of E n g l a n d , ha s in t h e s e w o r d s a t t e m p t e d t o d e f i n e " c e n t r a l b a n k i n g " b y s ref e r e n c e K to t h e v at^r;Lbute$ ,k J;u$c,tiopsK, krQles, ^ n d s K p r a c t i c e s of c e n t r a l b a n k s . He s e e s c e n t r a l b a n k i n g as an i n s t i t u t i o n e n d o w e d w i t h p o w e r s t o c a r r y o u t d i v e r s e f u n c t i o n s . Dr. R a s a p u t r a m , g o v e r n o r o f t h e C e n t r a l B a n k of Sri L a n k a , h a s a l s o t r i e d to d e f i n e c e n t r a l b a n k i n g b y s t a t i n g w h a t he t h o u g h t w e r e t h e f u n c t i o n s o f a c e n t r a l ban k . He said, a m o n g o t h e r t h i n g s : "A c e n t r a l b a n k is a l e n d e r o f th e las t r e s o r t , a b a n k e r ' s b a n k an d a b a n k e r to t h e G o v e r n m e n t . S u p e r v i s i o n o f al l b a n k  ing i n s t i t u t i o n s is a s t a t u t o r y r e s p o n s i b i l i t y g i v e n to all c e n t r a l b a n k s . " 2 1 J.L. F i s h e r , R e p o r t on t h e D e s i r a b i l i t y a n d P r a c t i c a  b i l i t y of E s t a b l i s h i n g a C e n t r a l B a n k in N i g e r i a for P r o m o t i n g t h e E c o n o m i c D e v e l o p m e n t of t h e C o u n t r y , 1952 pp. 4-5. 2 Dr. W. R a s a m p u t r a m , " R e l a t i o n s h i p of t h e C e n t r a l B a n k s w i t h t h e T r e a s u r y , P l a n n i n g a n d D e v e l o p m e n t A g e n c i e s in G o v e r n m e n t ," S e a n z a L e c t u r e s 1980, p. 174.

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In hi s o w n d e f i n i t i o n of w h a t a c e n t r a l b a n k is, the R i g h t H o n o u r a b l e J.G. C o a t e s said: "O u r f o r e - f a t h e r s g o t a l o n g r e a s o n a b l y w e l l w i t h v e r y p r i m i t i v e f o r m s of b a r t e r ... T h e C e n t r a l B a n k m e r e l y r e p r e s e n t s a n o t h e r s t a g e in the e v o l u t i o n of m o n e t a r y s c i e n c e . . . [it is] a n a t i o n a l i n s t i t u t i o n to c o - o r d i n a t e a nd c o n t r o l o u r b a n k i n g s y s t e m ."3 Mr. O l a V i n c e n t in d e s c r i b i n g t h e C e n t r a l B a n k of N i g e r i a s a i d : "I t s p o s i t i o n as t h e p r e m i e r o r a p e x f i n  a n c i a l i n s t i t u t i o n a n d t h e u l t i m a t e s o u r c e o f l i q u i d i t y in the e c o n o m y m a k e s it a u n i q u e a n d d e l i c a t e i n s t i t u t i o n . "4 P r o f e s s o r G.O. N w a n k w o , in hi s o wn a t t e m p t at a d e f i n i  tion, s e e s t h e c e n t r a l b a n k as a b a n k t h a t is c e n t r a l to the o p e r a t i o n s of a f i n a n c i a l s y s t e m : "A c e n t r a l b a n k c a n be d e f i n e d in m o r e t h a n o n e way. We c a n sa y t h a t it is an i n s t i t u t i o n c a l l e d u p o n to k e e p th e f i n a n c i a l s t r u c t u r e u p o n an e v e n k e e l o r in p r o p e r b a l a n c e ; the b a n k w i t h a d u t y to r e g u l a t e c u r r e n c y a n d c r e d i t in a c o u n t r y ; or th e a p e x of a c o u n t r y ' s m o n e t a r y a n d b a n k i n g s t r u c t u r e s e t u p to p e r f o r m c e r t a i n s t i p u l a t e d f u n c t i o n s in t h e n a t i o n a l i n t e r e s t . We c a n e a s i l y see th e c o m m o n f e a t u r e o f t h e s e d e f i n i t i o n s : e a c h a t t e m p t s to d e s c r i b e a c e n t r a l b a n k 3 T h e R i g h t Hon. J.G. C o a t e s , t he R e s e r v e B a n k P r o p o s a l ( G o v e r n m e n t P r i n t e r , W e l l i n g t o n , 1933), p. 12 q u o t e d in C e n t r a l B a n k i n g in the B r i t i s h D o m i n i o n s by A . F . W . P l u m p t r e , 1940, p. 163. 4 Mr. 0. O l a V i n c e n t , f o r m e r G o v e r n o r of t h e C e n t r a l B a n k of N i g e r i a , A d d r e s s at t h e D i n n e r g i v e n in H o n o u r of P a r t i c i p a n t s at the S y m p o s i u m to m a r k t h e 2 0 t h A n n i v e r s a r y of t he B a n k on t h e 2 9 t h J u n e , 1979, p. 6 .

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by t h e t a s k s it p e r f o r m s or is e x p e c t e d to p e r f o r m in the e c o n o m y . F r o m t h i s we c a n be j u s t i f i e d in d e f i n i n g it l i t e r a l l y as 'the b a n k t h a t is c e n t r a l t o th e o p e r a t i o n s of a n y f i n a n c i a l s y s t e m ' . It is th e h e a r t a n d p r o p e l  l i n g f o r c e of the f i n a n c i a l s y s t e m a n d it ha s an o v e r r i d i n g o b l i g a t i o n to s t e e r th e s y s t e m in s u c h a w a y as to p r o m o t e 'the p u b l i c G o o d a n d b e n e f i t of o u r p e o p l e ', as t h e o r i g i n a l c h a r t e r of t h e m o t h e r of c e n t r a l b a n k s , t h e B a n k of E n g l a n d , p u t it."^ M o s t a u t h o r s h a v e a t t e m p t e d to d e f i n e c e n t r a l b a n k i n g in W e s t e r n c a p i t a l i s t s o c i e t y b y r e f e r e n c e to th e c l a s s i c a l a n d m o d e r n f u n c t i o n s of c e n t r a l b a n k s . The s t a t u t e s of p r a c t i c a l l y all c e n t r a l b a n k s c i r c u m s c r i b e t h e i r p o w e r s a n d f u n c t i o n s and t h e o b j e c t c l a u s e s a m o u n t t o a d e f i n i t i o n of w h a t a c e n t r a l b a n k is a n d s h o u l d or s h o u l d n o t do. B u t w h i l e o n e m a y a c c e p t t h e s e d e f i n i  t i o n s as v a l i d in t he c i r c u m s t a n c e s , o n e m u s t ad d t h a t c e n t r a l b a n k i n g is t h e s c i e n c e o r a r t o f b a n k i n g in w h i c h a s i n g l e b a n k at t he a p e x o f th e m o n e t a r y a n d b a n k i n g s y s t e m s h a s a c o m p l e t e or r e s i d u a r y m o n o p o l y o f r e g u l a  t i n g c r e d i t , c u r r e n c y a n d t he f u n c t i o n o f m o n e y an d of c o n t r o l in t h e b a n k i n g and f i n a n c i a l i n s t i t u t i o n s in a c o u n t r y in a c c o r d a n c e w i t h s t a t u t e a n d in the n a t i o n a l e c o n o m i c i n t e r e s t . C e n t r a l b a n k s m a y t h e r e f o r e be e a s i l y d i f f e r e n t i a t e d an d i d e n t i f i e d as c o m p a r e d w i t h o t h e r b a n k s t h r o u g h t h e i r u n i q u e f u n c t i o n s a n d p r a c t i c e s . F o r t he a r t of c e n t r a l b a n k i n g h a s b e c o m e an e n t i r e l y s e p a r a t e b r a n c h o f b a n k i n g 1 Prof. G.O. N w a n k w o , B a s i c E c o n o m i c s , 1977, p. 229.

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d i s t i n c t f r o m s u c h o t h e r b r a n c h e s of b a n k i n g as c o m m e r c i a l b a n k i n g , i n d u s t r i a l b a n k i n g a n d a g r i c u l t u r a l b a n k i n g . B e c a u s e c e n t r a l b a n k s h a v e d e v e l o p e d t h e i r o w n c o d e s of r u l e s , p r a c t i c e s a n d p r o c e d u r e s o n e is t e m p t e d to d e f i n e c e n t r a l b a n k i n g as an art; a n d it is a l s o a s c i e n c e in so f a r as it a d o p t s t h e m o d e r n s c i e n t i f i c a n d t e c h n o l o  g i c a l a p p r o a c h to b a n k i n g a n d m a k i n g p e r i o d i c a l r e a d j u s t m e n t s in t h e sy s t e m . F o r a b a n k to be c l a s s i f i e d as a c e n t r a l b a n k s e v e r a l f a c t o r s o r c h a r a c t e r i s t i c s m u s t be p r e s e n t , o n e of w h i c h is t h e v i t a l r o l e m o n e y p l a y s in th e b a n k i n g s y s t e m . T h e i m p o r t a n t r o l e o f n o t e i s s u e a n d t h a t of l e n d e r of l a s t r e s o r t r e s u l t f r o m t h e a x i o m a t i c p o s i t i o n t h a t " m o n e y " is t h e c o m m o d i t y o p e r a t e d u p o n by a n y b a n k - , ing ,s y s t e m , I,f ,the,r$ is, go, "jnQney," , there,can, be, n,o , , , ,

q u e s t i o n o f h a v i n g a r e s e r v e c u r r e n c y o r o f a c e n t r a l b a n k b e i n g l e n d e r of l a s t r e s o r t . A s t h e f u n c t i o n s of c e n t r a l b a n k s t h e r e f o r e c e n t r e o n m o n e y , o n e m u s t f i r s t a t t e m p t a d e f i n i t i o n o f " m o n e y " . It is t h e r e f o r e p r o p o s e d in t h e f i r s t t w o i n t r o d u c  t o r y c h a p t e r s :-1. F i r s t , t o t r a c e t h e e v o l u t i o n of t h e c o n c e p t a n d u s e of m o n e y in th e o p e r a t i o n of an e c o n o m i c s y s t e m ; 2. S e c o n d l y , t o s k e t c h , in b r i e f , t h e h i s t o r y o f t h e e m e r g e n c e o f b a n k s as t h e c u s t o d i a n s of m o n e y a n d p r o v i d e r s of c r e d i t ; 3. T h i r d l y , t o i n d i c a t e w h e n a n d h o w b a n k i n g s y s t e m s a nd p r a c t i c e s w e r e i n t r o d u c e d i n t o A f r i c a in the c o l o n i a l p e r i o d ; a n d

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4. L a s t l y , t o i d e n t i f y t h e p e r i o d w h e n a n d the m e c h a n i s m s b y w h i c h c e n t r a l b a n k s w e r e c r e a t e d for t h e b e n e f i t o f a n g l o p h o n e A f r i c a n c o u n t r i e s . IS T H E C O N C E P T O F C E N T R A L B A N K I N G U N A F R I C A N ? T h e c l a s s i c a l o r t r a d i t i o n a l c o n c e p t of c e n t r a l b a n k i n g as c a n be d e d u c e d f r o m t h e s t r u c t u r e s a n d p r a c  t i c e s of t h e e s t a b l i s h e d c e n t r a l b a n k s in E u r o p e and A m e r i c a h a s b e e n r e v o l u t i o n i s e d . C e n t r a l b a n k i n g b e f o r e 1920 w a s c o n c e i v e d in E u r o p e s i m p l y as p e r f o r m i n g the f u n c t i o n of n o t e i s s u e w i t h a r e s p o n s i b i l i t y to s t a b i l i s e t h e c u r r e n c y a n d p r e v e n t i n f l a t i o n . In m a n y of th e E u r o p e a n c o u n t r i e s , o n e a g g r e s s i v e b a n k g r a d u a l l y c a m e to a s s u m e m o r e a n d m o r e t h e p o s i t i o n o f a c e n t r a l b a n k if it h a d b e e n t h e g o v e r n m e n t ' s b a n k e r o r a g e n t a n d e n j o y e d t h e s o l e o r t h e p r i n c i p a l r i g h t of n o t e i s su e . T h e B a n k of F r a n c e , f o u n d e d in 1800 p a r t l y w i t h th e a i d of S t a t e f u n d s b u t m a i n l y w i t h p r i v a t e c a p i t a l , w a s o n e s u c h b a nk . In t h i s k i n d o f r o l e s u c h b a n k s w e r e n o t o r i g i n a l l y c a l l e d c e n t r a l b a n k s , b u t w e r e g e n e r a l l y k n o w n as n a t i o n a l b a n k s or b a n k s of iss u e . B e f o r e 1914 m a n y c o u n  t r i e s h a d e s t a b l i s h e d n a t i o n a l b a n k s of iss u e , bu t it w a s n o t u n t i l t h e 1 9 2 0 s t h a t t h e s e b a n k s c a m e to be c a l l e d c e n t r a l b a n k s . T h e B a n k of E n g l a n d fo r e x a m p l e , w a s e s t a b l i s h e d b y p u b l i c s u b s c r i p t i o n in 1694 fo r the e x p r e s s p u r p o s e o f a d v a n c i n g m o n e y r a i s e d f r o m th e r i c h m e r c h a n t s o f L o n d o n to t h e g o v e r n m e n t , in r e t u r n for t h e p r i v i l e g e o f n o t e i s s u e c o n f e r r e d u n d e r a c h a r t e r g r a n t e d to it in an A c t of P a r l i a m e n t . In s u b s e q u e n t y e a r s t h e

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B a n k of E n g l a n d h a s a s s u m e d it s p r e m i e r p o s i t i o n as a c e n t r a l b a n k b y a c q u i r i n g m o r e a n d m o r e p o w e r s as the c u s t o d i a n of t h e c a s h r e s e r v e s o f t h e p r i v a t e b a n k s an d t h e c o u n t r y ' s g o l d r e s e r v e , t h e n as l e n d e r of l a s t r e s o r t , t h e n as r e g u l a t o r of B a n k R a t e as a n i n s t r u m e n t of c r e d i t p o l i c y u n t i l a r o u n d 1866 w h e n i ts i n f l u e n c e e n a b l e d it to be r e c o g n i s e d as t h e c e n t r a l b a n k o f G r e a t 6 B r i t a i n . T h i s c l a s s i c a l c o n c e p t o f t h e 1 9t h c e n t u r y o f c e n t r a l b a n k i n g w a s r a d i c a l l y c h a n g e d a f t e r t h e F i r s t W o r l d War , w h e n f o l l o w i n g t h e a d v i c e of t h e I n t e r n a t i o n a l F i n a n c i a l C o n f e r e n c e h e l d in B r u s s e l s in 1920 u n d e r t h e a u s p i c e s of t h e L e a g u e of N a t i o n s t h a t c o u n t r i e s w h i c h h a d n o t y e t e s t a b l i s h e d a c e n t r a l b a n k s h o u l d p r o c e e d to d o so as s o o n as p o s s i b l e to f a c i l i t a t e t h e r e s t o r a t i o n a n d m a i n t e n a n c e o f s t a b i l i t y i n m o n e t a r y a n d b a n k i n g s y s t e m s in t h e i n t e r e s t of w o r l d c o - o p e r a t i o n . E x i s t i n g n a t i o n a l b a n k s of i s s u e w e r e i n m a n y i n s t a n c e s r e  o r g a n i s e d a n d r e - n a m e d as c e n t r a l b a n k s . W h e r e n a t i o n a l b a n k s of i s s u e d i d n o t e x i s t ( m a i n l y in E a s t e r n E u r o p e , L a t i n A m e r i c a a n d A fr i c a ) n e w c e n t r a l b a n k s w e r e e s t a b  l i s h e d as p a r t of t h e i n t e r n a t i o n a l l y a c c e p t a b l e 1920 p l a n for r e s t o r i n g i n t e r n a l a n d e x t e r n a l s t a b i l i t y of p r i c e s , w h i c h w a s s e e n as an e s s e n t i a l p r e r e q u i s i t e fo r a r e t u r n t o th e g o l d s t a n d a r d . Si x y e a r s e a r l i e r in 1914 c e n t r a l b a n k s h a d b e e n 6 F o r a d e t a i l e d a c c o u n t of t h e h i s t o r y o f t h e B a n k o f E n g l a n d , see Dr. A. A n d r e a d e s , H i s t o r y of t h e B a n k of E n g l a n d 1 6 4 0 - 1 9 0 3 .

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e s t a b l i s h e d in t h e U n i t e d S t a t e s o f A m e r i c a in th e f o r m of t w e l v e F e d e r a l R e s e r v e B a n k s l o c a t e d in B o s t o n , N e w Yor k , P h i l a d e l p h i a , R i c h m o n d , A t l a n t a , C l e v e l a n d , C h i c a g o , M i n n e a p o l i s , St. L o u i s , K a n s a s C i t y , D a l l a s a n d S a n F r a n c i s c o . T h i s f o l l o w e d t h e f i n a n c i a l p a n i c o f 1907 w h i c h n e c e s s i t a t e d t h e a p p o i n t m e n t in 1910 o f a N a t i o n a l M o n e t a r y C o m m i s s i o n w h i c h w a s t o s t u d y b a n k i n g a n d m o n e y p r o b l e m s a n d p r o p o s e s o l u t i o n s . T h e c o m m i s s i o n p l a y e d a n i m p o r t a n t r o l e i n b a n k i n g reforms: its r e p o r t r e c o m  m e n d e d , a m o n g o t h e r t h i n g s , t h e e s t a b l i s h m e n t of a c e n t r a l b a n k i n g s y s t e m h a v i n g a c o - o r d i n a t i n g F e d e r a l 7 R e s e r v e B o a r d at W a s h i n g t o n . T h e m o d e r n c o n c e p t o f c e n t r a l b a n k i n g , w h i c h is a d e v e l o p m e n t o f t h e c l a s s i c a l c o n c e p t , is m u c h b r o a d e r , g o i n g b e y o n d c u r r e n c y s t a b i l i s a t i o n a n d p r e v e n t i o n of i n f l a t i o n to e x t e n d i t s i n f l u e n c e a n d f u n c t i o n s to th e r e l a t i o n s o f c e n t r a l b a n k s w i t h t h e g o v e r n m e n t , t h e p u b  lic, t h e f i n a n c i a l a n d b a n k i n g i n s t i t u t i o n s . H i s t o r i c a l l y t he c l a s s i c a l c o n c e p t a p p e a r s t o h a v e u n d e r g o n e a s i g n i f i c a n t t r a n s f o r m a t i o n a n d h a s c l e a r l y m o v e d a w a y f r o m t h e r e s t r i c t e d v i e w of t h e f u n c t i o n s o f t h e c e n t r a l ban k . C o n s e q u e n t l y , t h e m o d e r n c o n c e p t c a n b e f o u n d in t h e a r e a s o f m o n e t a r y r e s e r v e s , o p e n m a r k e t o p e r a t i o n , d e v e l o p m e n t a l r o l e a n d i n t e r n a t i o n a l m o n e t a r y a n d e c o n o m i c c o - o p e r a t i o n . M o n e t a r y m e a s u r e s a r e n o w t a k e n as p a r t o f w i d e r e c o n o m i c m e a s u r e s w h i c h ar e d e s i g n e d t o 7 F o r d e t a i l s o f t h e b a n k i n g r e - a r r a n g e m e n t s e e R o b e r t C r a i g W e s t , B a n k i n g R e f o r m a n d t h e F e d e r a l R e s e r v e 1 8 6 3 - 1 9 2 3 , 1977.

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p r o m o t e a v a r i e t y of m a c r o - e c o n o m i c aim s . T h e m o r e i m p o r t a n t a i m s are: f a c i l i t a t i n g a f a s t e r r a t e of g r o w t h in t h e e c o n o m y c o n s i s t e n t w i t h p r i c e s t a b i l i t y , p r o m o t i n g a h i g h l e v e l o f e m p l o y m e n t a n d g r e a t e r e q u i t y in i n c o m e d i s t r i b u t i o n , a n d m a i n t a i n i n g a r e l a t i v e l y s t a b l e e x t e r n a l v a l u e of t h e n a t i o n a l c u r r e n c y . T h i s n e w a n d n o w g e n e r a l c o n c e p t o f c e n t r a l b a n k i n g is a p r o d u c t of f i n a n c i a l e v o l u t i o n in t h e a d v a n c e d c o u n t r i e s a n d is l a r g e l y u n - A f r i c a n , h a v i n g e m e r g e d in m a t u r e , i n d u s t r i a l l y a d v a n c e d , c o u n t r i e s w i t h d i v e r s i f i e d e c o n o m i c s t r u c t u r e s a n d s o p h i s t i c a t e d m o n e y a n d c a p i t a l m a r k e t s . i n - A f r i c a u n t i l t h e 1 89 0 s t h e r e w e r e no b a n k i n g s y s t e m s n o r w e r e t h e r e a n y m o n e y o r c a p i t a l m a r k e t s . C e n t r a l b a n k s e s t a b l i s h e d in A f r i c a f r o m t h e 1 9 5 0 s o p e r a t e d in a l e s s t h a n f u l l y d e v e l o p e d f i n a n c i a l s y s t e m a n d t h e r e f o r e c o u l d n o t m e e t the c o n d i t i o n s r e q u i r e d f o r t h e e f f e c t i v e u s e o f t e c h n i q u e s for m a i n  t a i n i n g m o n e t a r y s t a b i l i t y . S o p h i s t i c a t e d m o n e y a n d c a p i t a l m a r k e t s ar e s t i l l to be d e v e l o p e d o r at t h e e a r l y s t a g e s o f t h e i r d e v e l o p m e n t . D e v e l o p i n g c o u n t r i e s h a v e h a d to f a c e p r o b l e m s t h a t ar e s p e c i a l to them. H o w e v e r , w i t h t h e d i s a p p e a r a n c e o f c o l o n i a l r e g i m e s in A f r i c a a n d t h e a c h i e v e m e n t of p o l i t i c a l a n d t h e r e f o r e e c o n o m i c i n d e p e n d e n c e , A f r i c a n ' g o v e r n m e n t s s e i z e d t h e o p p o r t u n i t y of s e l f - g o v e r n m e n t to e s t a b l i s h b a n k i n g s y s t e m s o n t h e l i n e s of E u r o p e a n c e n t r a l b a n k s . E a c h c o u n t r y h a d t o a d o p t its o w n p o l i c i e s f o r m u l a t e d in s u c h a m a n n e r as to c o p e w i t h it s s p e c i a l p r o b l e m s to a c h i e v e s et o b j e c t i v e s a n d n e e d s a v o i d i n g s o p h i s t r y in the a p p l i c a t i o n o f

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m o n e t a r y i n s t r u m e n t s n o t i c e a b l e in t h e a d v a n c e d e c o n o m i e s H I S T O R I C A L D E V E L O P M E N T OF M O N E Y B e f o r e t h e p r e s e n t d e g r e e of s o p h i s t i c a t i o n in the t e c h n i q u e s of b a n k i n g w a s a c h i e v e d t h e r e w a s a t i m e in t h e h i s t o r y o f m a n w h e n t h e r e w a s n o p r a c t i c e of b a n k i n g , at l e a s t as w e k n o w it today. In t h e s u b s i s t e n c e e c o n o m y , b e f o r e t h e m o n e t i z a t i o n o f e c o n o m i e s , t r a d e w a s b y b a r t e r . B e f o r e P o r t u g u e s e a n d A r a b t r a d e r s a r r i v e d i n N i g e r i a a n d o t h e r A f r i c a n c o u n t r i e s in t h e 15th c e n t u r y , t r a d e in t h e r e g i o n w a s c a r r i e d o n b y b a r t e r . G o o d s w e r e e x c h a n g e d f or g o o d s . U n d e r s u c h a s y s t e m a m a n w i t h c a r c a s e s of s u r p l u s m e a t c a n s e e k o u t t h e m a n w i t h s p a r e c a l i c o a n d t h e y c a n t r a d e t h e i r g o o d s b e t w e e n t h e m s e l v e s . T o b e s u c c e s s f u l , b a r t e r r e q u i r e s a d o u b l e c o i n c i d e n c e o f n e e d s fo r t h e m a n w i t h c l o t h m u s t w a n t m e a t . In a c l o s e - k n i t s o c i e t y w h e r e g o o d s a r e s i m p l e a n d few, it is p o s s i b l e to t r a d e o n t h i s b a s i s . It is a f a c t of h i s t o r y t h a t b e f o r e a n d a f t e r t h e S t o n e A g e p e o p l e w e r e o r g a n i s e d in s m a l l s o c i a l g r o u p s c a l l e d b a n d s . T h e s e b a n d s w e r e s e l f - s u f f i c i e n t in g o o d s a n d o t h e r m a t e r i a l n e e d s b e c a u s e in t h e s u b s i s t e n c e e c o n o m y u n d e r w h i c h t h e y l i v e d h u n t i n g an d n a t u r e p r o v i d e d a l l t h e f o o d t h e y r e q u i r e d , a n d a s a r e s u l t t h e n e e d to e x c h a n g e a r t i c l e s b e t w e e n v a r i o u s b a n d s o r i n d i v i d u a l s d i d n o t a r i s e . P r e h i s t o r i c m a n l i v e d at f i r s t c h i e f l y o n w i l d b e r r i e s , nut s , r o o t s a n d h e r b s . A s h i s i m p l e m e n t s i m p r o v e d a n d h i s s k i l l i n c r e a s e d , he b e c a m e h un t e r ,

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t r a p p e r , a n d f i s h e r . A t r i b e of h u n t e r s , h o w e v e r r e q u i r e s a n e x t e n s i v e t e r r i t o r y and a c o n s t a n t s u p p l y of game. W h e n t h e w i l d a n i m a l s ar e all k i l l e d o r s e r i o u s l y r e d u c e d in n u m b e r , p r i v a t i o n and h a r d s h i p r e s u l t . It w a s a f o r w a r d s t e p w h e n m a n b e g a n to t a m e a n i m a l s as w e l l as t o k i l l t h e m . T h e d o m e s t i c a t i o n of a n i m a l s t h e r e f o r e m a d e p o s s i b l e an a d v a n c e f r o m th e h u n t i n g a n d f i s h i n g s t a g e t o t h e p a s t o r a l stage. T h e d o m e s t i c a t i o n of p l a n t s m a r k e d a l m o s t as r e m a r k a b l e a n a d v a n c e as t h e d o m e s t i c a  t i o n o f a n i m a l s . T h e c o n s e q u e n c e o f a l l t h i s w a s t ha t S t o n e A g e m a n g r a d u a t e d f r o m th e l i f e of a w a n d e r i n g h u n t e r o r s h e p h e r d t o t h e lif e of a s e t t l e d f a r m e r . P o p u l o u s c o m m u n i t i e s g r e w a n d m a n h a d e n o u g h l e i s u r e w h i c h w a s e s s e n t i a l f o r the d e v e l o p m e n t o f t h e a r t s of l i f e . A s h u m a n s o c i e t y s e t t l e d an d e a r l y m a n s t a r t e d to li v e t o g e t h e r in l a r g e n u m b e r s , the s o c i e t y b e c a m e m o r e a n d m o r e c o m p l e x . W i t h th e c o m p l e x i t i e s g r e w h i s d i v e r s e n e e d s in v a r i e t y , v a l u e , n u m b e r an d q u a l i t y . A s he s e t t l e d d o w n in c o m m u n i t i e s , a n d h a d m o r e t i m e to h i m s e l f , m a n s t a r t e d to d e v e l o p his s p e c i a l i s e d s k i l l s in p r o d u c t i o n a n d f u n c t i o n s . O n e m a n o r g r o u p o r v i l l a g e d e v e l o p e d t h e s k i l l of p o t t e r y - m a k i n g , a n o t h e r t h e s k i l l o f c a t t l e r e a r i n g w h i l e y e t a n o t h e r b e c a m e a d e p t at t o o l m a k i n g . A s a r e s u l t of t h i s d e v e l o p m e n t in m a n ' s e c o n o m i c a n d s o c i a l h i s t o r y , the n e e d for i n t e r c h a n g e of c o m m o d i t i e s a n d p r o d u c t s w i t h i n m e m b e r s of t h e s a m e n o m a d i c g r o u p , fo r i n s t a n c e , a nd b e t w e e n c o n t i g u o u s b a n d s a n d i n d i v i d u a l s i n e v i t a b l y a r o s e . It is t h i s d e v e l o p m e n t

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o f t r a d e i n v o l v i n g t h e e x c h a n g e o;>f g o o d s t h a t is u s u a l l y | r e f e r r e d t o as " b a r t e r " . It is tthe e a r l i e s t t r a d e k n o w n t I I to m a n a n d e v e n in t h e c o m p l e x ec:onomie s of th e w o r l d t h r o u g h o u t t h e a g e s a n d to t h i s dlav t r a d e g o e s o n by | b a r t e r . T o d a y , t h e t w o g r e a t e s t w o r l d p o w e r s in a p p r o  p r i a t e c i r c u m s t a n c e s r e s o r t t o b a a r t e r . T h e S o v i e t U n i o n for e x a m p l e a d o p t s in its i n t e r n a t i o n a l t r a d e t h e s y s t e m of e x c h a n g i n g g o o d s for g r a i n s frrom o t h e r c o u n t r i e s , n o t a b l y t h e U n i t e d S t a t e s . In Nilg e r i a , e x c h a n g e of g o o d s for g o o d s is s t i l l p r a c t i s e d to aa l i m i t e d e x t e n t ; a c c o r  d i n g to Mr. G a m a l i e l O n o s o d e , t h e2 t h e n S p e c i a l A d v i s e r to t h e N i g e r i a n P r e s i d e n t o n Budgjet A f f a i r s : " On t r a d e b y b a r t e r , o n c r u d e oil, Mr. O n o s o d e n o t e d t h a t it wais n o t p o s s i b l e t o d o t h a t b e c a u s e 'this? is a g a i n s t .OPEC a g r e e m e n t ' . B a r t e r is o m e of the s t r a t e g i q s v to ki p c r q a g e k qpl.1 vp p o vd u c t i p h v a n d e x p o r t , a n d t h e r ef o r r e t o e m b a r k on t h i s , t h e c o u n t r y w i l l fzirst o f al l d e c i d e w h e t h e r to r e m a i m in O P E C or not. He e x p l a i n e d t h a t thea p u r p o s e of s e t t i n g p r o d u c t i o n limit: b y O P E C is to d r y (sic) t h e q u a n t i t y oaf s u r p l u s oi l in t h e m a r k e t w h i c h caus$ed t h e o i l glut, a n d t h e r e f o r e t r a d e by baarter o n o i l w i l l i n c r e a s e t h e o i l gliut, a n d w o r s e n t h e e c o n o m i c s i t u a t i o n . ri,8 T h e s e c o n d t y p e o f b a r t e r i d l e n t i f i e d is g i f t e x c h a n g e , w h i c h w a s i n t h e f o r m oaf g i f t s to a r e l a t i o n or f r i e n d w h i c h d i d n o t i n v o l v e a n y t r a d e . T h e m o s t c e l e  b r a t e d g i f t e x c h a n g e in O c e a n i a ( i n t h e P a c i f i c I s l a n d s ) , the K u l a s y s t e m , w a s r e c o r d e d b y JM a l i no w s k i : 1 N i g e r i a n D a i l y T i me s , N o v e m b e r * 30, 1983, p. 32.

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"In t h e T r o b r i a n d Islands,, for e x a m p l e , t r a d e i t e m s l i k e v o l c a n i c rock s , p o t s a n d b a s k e t s w e r e excha n g e d ! b e t w e e n the v a r i o u s i s l a n d s , b u t as a s e c o n d a r y a c t i v i t y to K u l a e x c h a n g e s w h i c h t a k e p l a c e s i m u l t a n e o u s l y . T h e K u l a o b j e c t s c o n s i s t of s h e l l n e c k l a c e s a n d a r m s h e l l s . P e r i o d i c a l l y , s o m e i n h a b i t a n t s of o n e i s l a n d w o u l d d e c i d e t o saiil t h e d a n g e r o u s s e a s to a n o t h e r i s l a n d to r e c e i v e a r m  s h e l l s o f n e c k l a c e s f r o m ttheir k n o w n K u l a p a r t n e r s . A f t e r t h e y h a d k e p t t h e s e i t e m s f or a w h i l e , t h e y w o u l d h a n d t h e m o v e r to i n h a b i t a n t s o f a n o t h e r i s l a n d w h o w o u l d a l s o h a v e m a d e t h e s e a t r i p to c o l l e c t the m . T h e s y s t e m is so o r g a n i s e d t h a t t h e n e c k l a c e s t r a v e l in o m e d i r e c t i o n a n d t h e a r m s h e l l s in t h e otherr. T h e r u l e is s u c h t h a t K u l a p a r t n e r s d o n o t c a r r y o u t t r a d e e x c h a n g e s b e t w e e n tfriemselves, in o r d e r n o t to j e o p a r d i s e tltieir f r i e n d s h i p . F u r t h e r m o r e , it is m o s t p r e s t i g i o u s to be in p o s s e s s i o n o f a K u l a olbject, a l b e i t t e m p o r a r i l y . In t h i s w a y a n e t w o r k or w e b of f r i e n d s h i p a n d p r e s t i g e is b u i l t up, w h i l e at t h e s a m e t i m e e c o n o m i c a c t i v i t i e s w h i c h a re n e c e s s a r y fo r the s u r v i v a l of t h e I s l a n d s axre u n d e r t a k e n .

T h e s i l e n t "of d u m b trade" w a s t:He" t h i r d k i n d o f b a r t e r i d e n t i f i e d in m a n y p a r t s o f t h e w o r l d . T h e g r e a t G r e e k h i s t o r i a n H e r o d o t u s (490 B. C . - 4244 B.C.) g a v e a d e t a i l e d a c c o u n t of t h i s t r a d e in W e s t A f r i c a w h e n he w r o t e : " m e r c h a n t s h i p c a s t a n c h o r o n a s t r a n g e sh o r e , t h e m e r c h a n t s w e n t on land, l a i d o u t t h e i r p r e s e n t s a n d rettreated to s h o w t h e i r f r i e n d l y intentions.. A f t e r s o m e t i m e t h e n a t i v e s a p p e a r e d , set o u t t h e i r e x c h a n g e p r e s e n t s a n d d i s a p p e a r e d s o as n o t to s c a r e a w a y th e o t h e r p a r t y . T h e n t h e m e r c h a n t s r e t u r n e d a n d e x a m i n e d t h e g o o d s l ai d out. If t h e y a p p r o v e d , t h e y t o o k t h e m a w a y a n d l e f t t h e i r o w n o n e s behincd. If not, t h e y t o o k s o m e o f t h e i r presentts a w a y a n d t h u s m a d e n e w o f f e r . T h i s g a m e w e n t on u n t i l 9 B. M a l i n o w s k i , A r g o n a u t s of t h e W e s t e r n P a c i f i c . The p r i m i t i v e e c o n o m y of t h e T r o b r i a n d I s l a n d e r s , E c o n o m i c J o u r n a l , M a r c h 1921.

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t h e o f f e r s of b o t h sidess w e r e b a l a n c e d a n d e v e r y o n e w a s s a t isfiied, a n d thu s t r a n s a c t i o n w a s c o n c l u d e d . " ^ A n d M a r y K i n g s l e y in 1897 i m h e r T r a v e l s in W e s t A f r i c a w r o t e : "I h a v e o f t e n s e e n on m a a r k e t r o a d s a l i t t l e s p a c e c l e a r e d b y t h e w a y s i d e , a n d n e a t l y l a i d w i t h p l a a i n t a i n leaves, w h e r e o n w e r e v e r y tidilyy a r r a n g e d v a r i o u s l i t t l e a r t i c l e s f o r sales - a fe w k o l a n u t s , l e a v e s o f tobacco,, c a k e s of salt, a f e w h e a d s o f m a i z e , orr a p i l e of y a m s o r s w e e t p o t a t o e s . A g a i i n s t e a c h c l a s s of a r t i c l e s so m a n y cowrrie s h e l l s or b e a n s a r e p l a c e d , and, a l w a y s h a n g i n g f r o m a b r a n c h a b o v e o r s e d a t e l y y s i t t i n g in the m i d d l e of t h e sho p , a liittle f e t is h . T h e n u m b e r of c o w r i e s h e l l s or b e a n s i n d i c a t e t h e p r i c e o f t h e i n d i v i c d u a l a r t i c l e s in t h e v a r i o u s h e a p s a n d tHie l i t t l e f e t i s h is t h e r e to s e e t h a t anyyone w h o d o e s n o t p l a c e in t h e s t e a d of tHne a r t i c l e s t h e i r p r o p e r p r i c e o r w h o m e d c d l e s w i t h th e t i l l s h a l l s w e l l u p a n d b u r s t t . " ^ O n t h e s i l e n t t r a d e in Ghanea E . W . B o v i l l w r o t e as f o l l o w s : "Th e m e r c h a n t s b e a t gresat d r u m s to s u m m o n th e l o c a l n a t i v e s , w h o w e r e n a k e d an d l i v e d in h o l e s in t h e grround. F r o m t h e s e h o l e s , w h i c h w e r e d o u b t l l e s s the p i t s f r o m w h i c h t h e y d u g t h e gold,, t h e y r e f u s e d to e m e r g e in t h e p r e s e n c e cof t h e f o r e i g n m e r c h a n t s . T h e l a t t e r , t h e r e f o r e , u s e d to a r r a n g e t h e i r t r a d e cgoods in p i l e s on t h e r i v e r b a n k a n d retirre o u t of sight . T h e l o c a l n a t i v e s t h e n ocame and p l a c e d a h e a p o f g o l d b e s i d e eaclh p i l e an d w i t h  d r e w . If t h e m e r c h a n t s w e r e s a t i s i f e d t h e y t o o k t h e g o l d a n d n r e treated, b e a t i n g t h e i r d r u m s t o s i g n i f y tthat the m a r k e t w a s o v e r. " 1 2 10 A . H . Q u i g g i n , A S u r v e y o f P r i n m i t i v e M o n e y , 1 949, p. 11. 11 K i n g s l e y , T r a v e l s in W e s t A f r i i c a , 1897, p. 248. 12 Q u o t e d in: W a l t e r R o d n e y , H o w E u r o p e U n d e r d e v e l o p e d A f r i c a , p . 68.

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A l o n g L o n d o n s t r e e t s a n d in T u b e S t a t i o n s , the s i l e n t t r a d e g o e s on u n d i s g u i s e d . Th e n e w s - v e n d o r s la y t h e d a i l y n e w s p a p e r s on r o a d k e r b s an d in th e T u b e S t a t i o n s ; r e a d e r s p i c k u p c o p i e s of n e w s p a p e r s of t h e i r c h o i c e a n d d r o p t h e e q u i v a l e n t in m o n e y . T h e v e n d o r n e e d not be p r e s e n t . T H E P R O B L E M S O F B A R T E R T r a d e by b a r t e r w i t h i t e m s of p r o d u c t i o n u s u a l l y r e f e r r e d to as c o m m o d i t y m o n e y in a n y c o m m u n i t y is b e d e v i l l e d w i t h p r o b l e m s a n d d i f f i c u l t i e s . T h e i n h e r e n t d i f f i c u l t i e s in t h e u s e o f c o m m o d i t y m o n e y m a k e t h e i r a c c e p t a b i l i t y an u p - a n d - d o w n a f f a i r . T h e v a l u e of t h e c o m m o d i t y , s a y a g o a t ' s skin, m a y c h a n g e w i t h c h a n g i n g t a s t e s , v a l u e s a n d t i m e s . I n N i g e r i a for i n s t a n c e , t h e a m o u n t o r q u a n t i t y of g o a t ' s s k i n a v a i l a b l e in K a n o m a r k e t s m a y d i m i n i s h w i t h t i m e a n d be i n s u f f i c i e n t as t r a d e a n d d e m a n d s e x p a n d . A p a r t f r o m t h e i r b u l k and s t o r a g e p r o b l e m s , t h e s y s t e m o f p h y s i c a l t r a n s f e r of g o o d s a n d e x c h a n g e s is c u m b e r s o m e and u n r e l i a b l e , a n d no p a r t y is s u r e t h a t at t h e e n d o f th e d a y a s u c c e s s f u l t r a n s f e r w i l l e m e r g e . T h e p o s i t i o n c h a n g e d h o w e v e r in t h e 1 94 0 s w h e n t r a n s p o r t s y s t e m s b e g a n to be d e v e l o p e d in Africa.- M a r k e t s , w h e r e a v a i l a b l e at all, w e r e i m p e r f e c t a n d b e s i d e s t h e r e w e r e n o m a r k e t p l a c e s a n d n o s p e c i f i c t i m e s for t h e e x c h a n g e of g o o d s . D e m a n d s f o r c o m m o d i t i e s w e r e as i m p r o m p t u as t h e s u p p l i e s w e r e e r r a t i c . Th e m e t h o d of t h e s i l e n t o r d u m b t r a d e d e s c r i b e d a b o v e is p a r t i c u l a r l y t e d i o u s .

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F r o m t h e a c c o u n t of a t y p i c a l t r a d e by b a r t e r g i v e n b y H e r o d o t u s in t h e p r e c e d i n g pa r a c g r a p h s t h e p r o b l e m of h a v i n g a n a c c e p t a b l e m e a s u r e of e q i u i v a l e n t s is a s i g n i f i  c a n t h a n d i c a p w h i c h c a n i m p e d e tracde. T h e r e w e r e a l s o t h e p r o b l e m s o f d u r a b i l i t y of c o m m c o d i t i e s , a n d of d i v i s i b i l i t y of s o m e m a t e r i a l s or ^ p r o d u c t s . A s w e h a v e s e e n a b o v e t h e p r o b l e m s a s s o c i a t e d w i t h b a r t e r d u r i n g t h e e r a of p r e - m o n e t a r y s o c i e t i e s w e r e e n o r m o u s , b u t t h a t s y s t e m o f t r a d e s e r v e d t h e s o c i e t i e s ' n e e d s w h i c h w e r e n o t d e m a n d i n g . B a r t e r w o u l d b e inc'appropriate a n d u n s u i t  a b l e in t o d a y ' s w o r l d , a l t h o u g h it m u s t b e a d m i t t e d t h a t t h i s e a r l y f o r m of t r a d e w a s t h e mcost s u i t a b l e d u r i n g t h e p e r i o d g i v e n t h e p r e v a i l i n g ch a r a c t t e r of t h e i r s u b s i s t e n c e e c o n o m y . T H E S E A R C H F O R A S T A N D A R D O F VALUE:: T H E E M E R G E N C E OF M O N E Y W e s a w in t h e p r e c e d i n g p a r a g r a p h s t h a t t r a d e b y b a r t e r h a s f o u r m a i n p r o b l e m s . A s u c c e s s f u l b a r g a i n i n g in th e e x c h a n g e o f g o o d s a n d servicces w h i c h o n e p r o d u c e s f o r t h e g o o d s a n d s e r v i c e s w h i c h otthers p r o d u c e a n d w h i c h o n e n e e d s d e p e n d s on a d o u b l e c o i n c i d e n c e of w a n t s . M u c h p a t i e n c e , l u c k a n d s c o u t i n g fo r soimeone w h o w a n t s o n e ' s g o o d s is r e q u i r e d for t h i s s y n c h r o m i s a t i o n of w a n t s to t a k e p l a c e . T h e r e is a l s o t h e d i f j f i c u l t y of t h e t w o p a r t i e s n o t b e i n g a b l e t o s e t t l e h o w m u c h of o n e c o m m o d i t y c a n be e x c h a n g e d fo r a n o t h e r c o m m o c d i t y or s e r v i c e . C l o s e l y t i e d to t h i s d i f f i c u l t y of n o t b e i n g a b l e to f i n d a c o m m o n u n i t of m e a s u r e is t h e p r o b l e m of i n a b i l i t y to

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d e t e r m i n e a u n i t of a c c o u n t for thes g o o d s a n d s e r v i c e s fo r p u r p o s e s of a c c o u n t i n g . A n d f i m a l l y , b e c a u s e t h e r e is no s a t i s f a c t o r y u n i t (like Nairai, D o l l a r s ) in t e r m s of w h i c h to e x p r e s s c o n t r a c t s r e q u i r i n o g f u t u r e p a y m e n t s , s u c h as rent s , t r a d e b y b a r t e r is aan u n s a t i s f a c t o r y m e d i u m of t r ad e . It w a s in an e f f o r t b y s o m e i m g e n i o u s t r a d e r s or m e r c h a n t s to o v e r c o m e t h e s e d r a w b a c t k s t h a t m o n e y w a s i n v e n t e d t o f i l l t h e g a p s b a r t e r le^ft in its t r a i l . F o r m o n e y t o be u s e f u l as a m e e d i u m of e x c h a n g e an d t o s e r v e as a s t a n d a r d o f v a l u e , it- has to r e m o v e , or m i n i m i s e t h e e f f e c t of, t h e d r a w b a c r k s a n d s a t i s f y t h e c o n d i t i o n in w h i c h it c a n be u s e d ais a s t a n d a r d f o r d e f e r r e d p a y m e n t o r as a s t o r e of w a l u e o r i n d e e d u s e d to s e r v e as a u n i t o f a c c o u n t a n d so O D n . In A f r i c a , d u r i n g t h e B r o n z e Age, s o m e 5 , 0 0 0 y e a r s aggo, t o o l s , o r n a m e n t s , m e t a l b a r s a n d o t h e r p r o d u c t s came tco be a c c e p t e d as y a r d  s t i c k s fo r m e a s u r i n g v a l u e s . In thne r es u l t , a c o m m o d i t y c o u l d be m e a s u r e d in so m a n y p a r t s . a nd the v a l u e s of g o o d s a n d p r o d u c t s r e d u c e d to a coirmmon m e a s u r e . It is t h i s C O M M O N M E A S U R E t h a t m a n c a l l s I MONEY. M o n e y t h u s p e r f o r m s t h e f u n c t i i o n of b e i n g t h e a c c e p t  a b l e M E D I U M fo r a c o m m u n i t y to e x p o r e s s th e v a l u e of g o o d s a n d s e r v i c e s it p r o d u c e s , and! it e n a b l e s b u y i n g to be s e p a r a t e d f r o m s e l l i n g . F o r m o n n e y to d i s c h a r g e the f u n c t i o n s of a m e d i u m o f e x c h a n g e , a u n i t of a c c o u n t , a s t a n d a r d fo r d e f e r r e d p a y m e n t s , or a s t o r e of v a l u e , it h a s to p e r f o r m o n e or m o r e of theses t r a d i t i o n a l r o l e s as a c o m m o n m e a s u r e o f g o o d s a n d s e r v i i c e s . N o m e d i u m of