Name: OLUWOLE-OJO OLUWAFERANMI
IFEDAMOLA
Matric number: 221903
Course: Law of Banking I
Course Code: LCI 303
Lecturer: PROF. KUNLE AINA
Question: Examine critically the role, duties and regulatory powers of
the Central Bank of Nigeria.
OUTLINE
Introduction
2
Historical Overview
2
Roles and Duties of the CBN
5
Regulatory Powers/Legal Framework of CBN
12
Challenges and Critiques of CBN Policies
13
Case Studies
16
International Comparisons
18
Recommendations for Improvements of CBN policies 20
Conclusion
22
References
23
1
INTRODUCTION
A central bank is a public institution that is responsible for implementing monetary policy,
managing the currency of a country, or group of countries, and controlling the money supply.
Central banks are integral to a country’s economy because they aim to ensure the stability of the
financial system. Their decisions are directly dependent on the supervisory body that composes
the financial institution and independent of the political group in power in any given country.
The Central Bank of Nigeria is the central bank and apex monetary authority of Nigeria
established by the CBN Act of 1958, a draft legislation for the establishment of Central Bank of
Nigeria presented to the House of Representatives in March, 1958. In the period between 1892
and 1952, there was an enquiry by the then colonial administration to investigate banking
practice in Nigeria. The G. D. Paton Report which emanated from the enquiry was the basis for
the first Banking Ordinance of 1952. The ordinance was designed to ensure orderly commercial
banking and to prevent the establishment of unviable banks. The Act was fully implemented on 1
July, 1959 when the Central Bank of Nigeria came into full operations. The purpose of this paper
is to examine the roles, duties and regulatory powers of the Central Bank of Nigeria with the aim
of critiquing its roles and powers, examining its roles and controversies, comparing it with other
international central banks and finally, recommending possible improvements and solutions for
enhancing its modus operandi in the country.
HISTORICAL OVERVIEW
The Central Bank of Nigeria (CBN), established in 1958 by the Central Bank of Nigeria Act,
stands as a pivotal institution in the nation's economic landscape. Prior to its inception, the
banking sector in Nigeria was characterized by a lack of oversight and control, with struggling
banks often serving the neglected needs of indigenous businesses. The CBN's arrival marked a
significant departure from this era, ushering in a new chapter of monetary and financial selfdetermination. Initially, the CBN's primary responsibilities centered on currency issuance and the
management of external reserves. However, as Nigeria transitioned towards independence in
1960, the bank's mandate evolved to encompass the broader realm of macroeconomic policy
formulation and implementation. The 1970s witnessed a further expansion of the CBN's role,
2
with the inclusion of banking supervision and regulation, aiming to foster a sound and stable
financial system.
Subsequent decades saw the CBN navigate periods of economic turbulence, playing a crucial
role in the implementation of structural adjustment programs during the 1980s and spearheading
significant financial sector reforms in the 1990s. Notably, the 2004 banking sector consolidation
exercise, driven by the CBN, strengthened the financial system by requiring higher capitalization
for banks, leading to a streamlined industry through mergers and acquisitions. The CBN's
commitment to modernization and inclusivity in the financial sector came to the fore in the
2010s, with initiatives such as the Cashless Policy and the introduction of the Bank Verification
Number (BVN) aiming to enhance efficiency and security. This dedication was further
showcased in the bank's response to the COVID-19 pandemic, with measures such as loan
forbearance programs and interventions for impacted sectors bolstering economic stability during
a challenging period.
Throughout its history, the Central Bank of Nigeria has demonstrably served as a cornerstone of
Nigeria's economic development, its policies and strategies evolving in tandem with the nation's
evolving needs. And as the Nigerian economy continues to navigate dynamic challenges, the
CBN remains a crucial force shaping its future trajectory.
SIGNIFICANT MILESTONES IN ITS DEVELOPMENT.
The Central Bank of Nigeria (CBN) has traversed a remarkable journey, navigating diverse
economic landscapes and leaving a trail of significant milestones. This section delves into some
of the most pivotal moments that have shaped the institution and its profound impact on the
Nigerian economy.
The CBN's genesis, as has already been well established, lies in the crucial year of 1959. In
1973, another pivotal moment arrived with the introduction of the Naira as the national currency.
This momentous event signified a bold step towards economic independence and solidified
Nigeria's unique financial identity. The shift from the Pound to the Naira placed greater control
over monetary policy in the hands of the CBN, enabling it to tailor its strategies to address
3
specific national economic needs. Recognizing the need for a robust financial system, the CBN
embarked on a series of critical reforms in the 1980s. These reforms included measures to bolster
bank capital, enhance regulatory frameworks, and promote sound banking practices. By
strengthening the financial architecture, the CBN paved the way for a more secure and efficient
system, fostering greater financial stability and investor confidence.
Another significant milestone emerged in the form of the Structural Adjustment Program (SAP)
adopted in 1986. This comprehensive economic reform program aimed to liberalize the
economy, deregulate markets, and introduce market-oriented policies. While challenging at
times, the SAP laid the groundwork for economic growth and sustainable development in the
long run. In 2014, the CBN innovated once again by introducing the Bank Verification Number
(BVN) system. This groundbreaking initiative significantly enhanced the security of financial
transactions by providing a unique identifier for each bank customer. The BVN system
effectively curbed fraudulent activities and fostered greater trust and confidence in the financial
system.
Recognizing the potential of electronic payments to boost efficiency and transparency, the CBN
implemented the cashless policy in 2012. This policy encouraged the use of electronic payment
options such as debit cards and mobile money, effectively reducing reliance on physical cash and
accelerating the modernization of the financial sector. The Anchor Borrowers' Program,
established in 2015, marked a pivotal moment for the agricultural sector. This program provided
farmers with much-needed access to credit facilities and market linkages, leading to a significant
boost in agricultural productivity and a reduction in food imports. By supporting the agricultural
sector, the CBN demonstrably recognized its crucial role in driving economic growth and
ensuring food security for the nation.
In 2016, the CBN tackled the challenge of foreign exchange volatility through a series of policy
reforms. These reforms included the introduction of a flexible exchange rate regime and the
creation of the Investors' and Exporters' (I&E) Forex window. By facilitating a more responsive
exchange rate system and attracting foreign investment, these measures contributed to greater
stability and resilience in the face of external economic pressures. The CBN's unwavering
4
commitment to supporting the Nigerian economy was further exemplified in its response to the
COVID-19 pandemic in 2020. Faced with unprecedented economic challenges, the CBN
implemented various monetary and fiscal measures, including loan moratoriums and stimulus
packages, to provide much-needed relief to businesses and individuals during this critical period.
CBN's journey has been marked by a series of significant milestones, each contributing to the
development and stability of the Nigerian financial system. From its inception to its unwavering
support during the COVID-19 pandemic, the CBN has demonstrated its commitment to
promoting economic growth and prosperity for the nation. As the institution continues to
navigate the complexities of the 21st century, its dedication to innovation, sound financial policy,
and unwavering support for key sectors remains paramount to securing a bright and prosperous
future for Nigeria's economy.
ROLES AND DUTIES OF THE CENTRAL BANK OF NIGERIA
The Central Bank of Nigeria (CBN) serves as a fundamental pillar of the nation's financial
system, playing a crucial role in shaping its economic trajectory. Through its diverse and
essential responsibilities, the CBN acts as the guardian of monetary stability, the custodian of the
national currency, and a key architect of economic development. From formulating and
implementing monetary policy to closely overseeing financial institutions and managing foreign
exchange reserves, the CBN's multifaceted duties converge to ensure the integrity of Nigeria's
financial system and propel the nation towards sustained economic growth. The major roles and
objectives of the Central Bank of Nigeria as stated in the CBN Act of 2007 include: maintaining
the external reserves of the country, promoting monetary stability and a sound financial
environment, and acting as a banker of last resort and financial adviser to the federal
government. A careful breakdown and examination of these roles include:
MONETARY POLICY FORMULATION AND IMPLEMENTATION
The Central Bank of Nigeria (CBN) has the role of formulating and implementing monetary
policy in Nigeria. This involves regulating the supply of money in the economy to achieve price
stability and promote economic growth. The CBN defines money supply as “comprising narrow
5
and broad money”, and its specific objective and focus of monetary policy may change from
time to time, depending on the level of economic development and economic fortunes of the
country. The objectives of monetary policy may vary from country to country, but the CBN's
main objective is to achieve price stability, while also considering other macroeconomic
objectives. Here's a closer look at how the CBN wields monetary policy as a powerful tool in its
arsenal:
1. Price Stability: One of the central pillars of the CBN's mandate is the maintenance of
price stability. This entails keeping inflation within a predetermined target range, thereby
safeguarding the purchasing power of the Naira and fostering a conducive environment
for economic growth and investment. The CBN utilizes various tools in its pursuit of
price stability, including:
● Interest Rate Management: This involves adjusting benchmark interest rates to influence
the cost of borrowing and aggregate demand within the economy.
● Open Market Operations (OMO): Through buying and selling of government securities in
the open market, CBN seeks to influence the money supply and liquidity conditions in
the banking system.
● Foreign Exchange Management: By intervening in the foreign exchange market to
maintain a stable and competitive exchange rate, which helps to anchor inflation
expectations and promote international trade.
● Inflation Targeting: To guide its monetary policy actions and enhance transparency, the
CBN sets specific inflation targets. This framework enables the central bank to
proactively address inflationary pressures and maintain price stability in a predictable
manner.
2. Exchange Rate Stability: A stable and competitive exchange rate is crucial for fostering
international trade, attracting foreign investment, and promoting economic growth. The
CBN employs a combination of market-based interventions and foreign exchange
reserves management to maintain exchange rate stability and mitigate external shocks.
3. Macro Prudential Regulation: Beyond addressing immediate economic concerns, the
CBN also focuses on ensuring the long-term health and stability of the financial system.
6
This involves establishing and enforcing prudential regulations and guidelines, such as
capital adequacy requirements, to mitigate systemic risks and enhance the resilience of
financial institutions.
4. Financial Inclusion: Recognizing the importance of an inclusive financial system, the
CBN actively promotes financial inclusion initiatives. These initiatives aim to bring more
individuals and businesses into the formal financial system, thereby enabling them to
participate in the economic mainstream and access essential financial services.
5. Economic Growth and Employment: While prioritizing price stability, the CBN also
recognizes the importance of fostering sustainable economic growth and employment
creation. The central bank utilizes a range of monetary policy tools and collaborates with
other stakeholders to create an environment conducive to thriving economic activity and
job creation.
CURRENCY ISSUANCE AND MANAGEMENT
The Central Bank of Nigeria (CBN) plays a crucial role in currency issuance and management in
the country. It ensures an adequate supply of currency notes and coins to meet the demands of
the public and the economy. Some key aspects of the CBN's currency management include:
1. Issuing Legal Tender Currency: The CBN is responsible for issuing legal tender
currency in Nigeria, which is essential for the country's economic development. Section
2(b) of the CBN Act mandates the CBN to be the sole issuer of legal tender currency in
Nigeria. The CBN issues Nigerian currency banknotes and coins, while the West African
Currency Board issued currency notes and coins in Nigeria from 1912 to prior to the
establishment of the West African Currency Board. The CBN has clarified that all
banknotes issued by the CBN remain legal tender, as stipulated in Section 20(5) of the
CBN Act, 2007 which states that “no one should refuse to accept the Naira as a means of
payment”. Consequently, members of the public are advised to accept all CBN-issued
banknotes currently in circulation and guard against panic withdrawals.
7
2. Currency Design and Security Features: The CBN is responsible for the design and
security features of Nigerian currency notes and coins. The notes were changed in 1968
as a war strategy following the misuse of the country's currency, in 2014 when it changed
the design of the 100 naira note to commemorate Nigeria's centenary and in October
2022 as a statutory responsibility and a way to curb the increased circulation of
counterfeit notes in the country.
3. Currency Management Reforms: The CBN has implemented various currency
management reforms over the years, such as the introduction of decimal currency in
1973, with the major unit called Naira and the minor unit called Kobo.
4. Addressing Currency Challenges: The CBN addresses challenges related to currency
management, such as the scarcity of cash across some major cities in Nigeria especially
within the period of December 2022 to February 2023, even though the methods they
employed was deemed unsavory by many. The CBN issues statements reassuring the
public that there is sufficient stock of currency notes to facilitate normal economic
activities and encourages the public to embrace alternative modes of payment.
BANKER TO THE FEDERAL GOVERNMENT
The Central Bank of Nigeria (CBN) serves as a banker to the Federal Government, playing a
crucial role in maintaining accounts for the Federal Government, State Governments, and their
ministries and departments. This relationship is governed by law, particularly the Central Bank
of Nigeria (CBN) Act 2007. As a banker to the Federal Government, the CBN has several
responsibilities:
1. Maintaining accounts: The CBN maintains accounts for the Federal Government, State
Governments, the Federal Capital Territory, and Federal and State Ministries and quasigovernment agencies.
2. Accounting for government revenue: The CBN receives and accounts for revenues of
the Federation, observing the banker-customer relationship in the maintenance of the
accounts and acting as a financial adviser to the government.
8
3. Providing economic and financial advice: The CBN acts as a banker and provides
economic and financial advice to the Federal Government, advising on the nature and
size of government debt instruments to be issued and acting as the issuing house on
behalf of the government for short, medium, and long-term debt instruments.
4. Managing domestic public debt: The CBN plays a significant role in managing the
domestic public debt of the Federal Government, ensuring that the debt is managed
efficiently and effectively.
SUPERVISION AND REGULATION OF FINANCIAL INSTITUTIONS
CBN assumes a pivotal role in overseeing and regulating the nation's financial system. Its
multifaceted responsibilities in this sphere include:
1. Regulation and Monitoring: The CBN acts as the guardian of Nigeria's financial
landscape, meticulously monitoring and regulating the activities of banks and other
financial institutions. This unwavering commitment ensures high standards of practice
and fosters a stable and thriving financial ecosystem.
2. Promoting a Sound Financial System: The CBN's mandate extends beyond mere
oversight. It actively promotes the development of a robust and efficient financial system
through the implementation of comprehensive regulations and policies. These measures
aim to ensure the long-term stability and efficacy of the financial sector, thereby
contributing to the overall economic health of Nigeria.
3. Acting as Lender of Last Resort to Banks: Recognizing the potential for unforeseen
challenges, the CBN stands as a reliable source of emergency credit for banks facing
liquidity difficulties. By fulfilling this crucial role, the CBN acts as a safety net,
mitigating systemic risks and safeguarding the stability of the entire financial system. The
CBN provides emergency credit to financial institutions that are struggling and have
exhausted all other available means of borrowing. This role is crucial for maintaining
financial stability and preventing systemic distress in the banking sector.
9
The CBN's early functions were mainly to act as the government's agency for the control and
supervision of the banking sector, to monitor the balance of payments, and to promote the
stability of the currency and it still maintains these functions till today. Through its unwavering
commitment to effective oversight, proactive promotion of a robust financial system, and
provision of crucial support to banks, the CBN paves the way for sustainable economic growth
and development.
FOREIGN EXCHANGE MANAGEMENT
CBN plays a crucial role in the management of foreign exchange in Nigeria. Some key aspects of
the CBN's foreign exchange management include:
1. Exchange Rate Stability: The CBN intervenes in the foreign exchange market to
maintain exchange rate stability and liquidity, which supports monetary policy
implementation.
2. Efficiency and Transparency: It aims to enhance efficiency and transparency in the
foreign exchange market, which attracts more foreign investment and promotes economic
growth.
3. Reserve Management: CBN manages Nigeria's foreign exchange reserves, which are
used to support the value of the naira and maintain external reserves to safeguard the
international value of the legal tender currency.
4. Trade Finance Functions: The CBN undertakes trade finance functions on behalf of
banks' customers, which involves providing financing for international trade transactions.
CREDIT CONTROL AND REGULATION
CBN plays a crucial role in shaping the landscape of credit in Nigeria. Its efforts extend far
beyond mere oversight, actively influencing the flow of money to promote economic growth and
stability. Here are some key aspects of the CBN's credit control and regulation framework:
10
1. Credit Policy Formulation and Implementation: The CBN is not just a passive
observer; it actively crafts and implements credit policies. These policies aim to strike
a delicate balance between fostering economic growth and development while
keeping inflation under control. By carefully calibrating the flow of credit, the CBN
steers the economy towards sustainable prosperity
2. Credit Risk Management: The CBN does not simply dictate; it also educates and
equips. By setting prudential guidelines and regulations for banks and other financial
institutions, the CBN empowers them to manage credit risk effectively, fostering a
culture of responsible lending and borrowing.
3. Promotion of Financial Inclusion: The CBN recognizes that financial inclusion is
essential for a thriving economy. It actively promotes policies and initiatives that
bring more individuals and businesses into the formal financial system. This
commitment ensures that everyone has access to essential financial services and can
participate in the economic mainstream.
PAYMENT SYSTEM OVERSIGHT
The Central Bank of Nigeria (CBN) has a critical role in the oversight of payment systems. This
involves promoting the safety and efficiency of payment, clearing, and settlement arrangements
by monitoring existing and planned systems, assessing them against these objectives, and
inducing change where necessary. The CBN is also responsible for driving the overall National
Payments System Strategy, providing cross-scheme resources, and arbitrating in cross-scheme
decisions. Its risk governance responsibilities include providing risk oversight of the payment
system, ensuring adequate resources are allocated to risk, approving the risk strategy for the
payment system, and setting risk parameters and tolerances within which payment system
activities would be conducted.
RESEARCH AND DATA COLLECTION
The Central Bank of Nigeria (CBN) plays a significant role in research and data collection and it
is essential for maintaining the stability and efficiency of the Nigerian financial system, as well
11
as for promoting economic growth and development. Some key aspects of the CBN's research
and data collection activities include:
1. Collaboration with other agencies: The CBN has worked in collaboration with various
agencies to serve the public and keep them informed about economic issues concerning
the country.
2. Data collection and analysis: Central banks, including the CBN, collect a vast array of
economic data related to various sectors, such as monetary and financial, external,
household, and business sectors. This data is crucial for monitoring the economy and
informing policy decisions.
3. Methodological issues: Central banks, including the CBN, are significantly involved in
methodological issues in domestic and international forums to ensure the accuracy and
reliability of the data they collect and analyze.
4. Human resources and technology: Data collection, compilation, analysis, and
dissemination activities require substantial human resources, IT, communication with
data reporters/providers, and good cooperation with other statistical agencies, both at the
domestic and international levels. The CBN invests considerable resources in these
activities to ensure the effectiveness of its research and data collection efforts.
5. Research and policy formulation: The CBN uses research and data collected to
formulate monetary policy, promote financial stability, and support economic growth and
development in Nigeria.
Furthermore, the roles, duties and objectives of the Central Bank of Nigeria, provided for by the
CBN act helps to regulate the activities of the bank to ensure that their actions are in line with
their enabling ac and not ultra virest, as well as assessing their performance based on what they
have achieved, what they are achieving and what they should be achieving.
REGULATORY POWERS/ LEGAL FRAMEWORK OF CBN
The Central Bank of Nigeria (CBN) operates within the legal framework provided by the CBN
Act of 2007, which repealed the CBN Act of 1991 and all its amendments. This Act grants the
12
CBN full autonomy in the discharge of its functions, with the objective of promoting stability
and continuity in economic management. The Act widens the CBN's objectives to include
ensuring monetary and price stability and providing economic advice to the Federal Government.
The CBN's regulatory powers are derived from this Act, and it is the sole regulator responsible
for regulating mergers, acquisitions, and business combinations in Nigeria in relation to banks
and other financial institutions. The CBN also has the power to issue commercial bank licenses
and to prohibit commercial banks from engaging in certain activities, such as insurance
underwriting and asset management services. The CBN's autonomy is intended to enable it to
fulfill its mandate as prescribed by law, but there have been discussions about the need for
limitations and stronger corporate governance within the CBN itself. The Act establishes the
composition and functions of the CBN's Board of Directors, which is responsible for making
policy decisions, and outlines the appointment, roles, and responsibilities of the Governor and
Deputy Governors of the CBN. The Act specifies the legal tender status of the currency issued
by the CBN and spells out the legal framework for taking legal actions against the CBN or its
officers.
In addition to the CBN Act, other legislation, such as the Banks and Other Financial Institutions
Act (BOFIA) and the Money Laundering (Prohibition) Act, may complement the legal
framework, providing additional regulations and guidelines for the financial sector.
CHALLENGES AND CRITIQUES OF CBN POLICIES
The Central Bank of Nigeria (CBN), entrusted with the stewardship of the nation's financial
system, inevitably finds itself navigating a complex and often turbulent sea. Its policies,
formulated with the utmost intent to steer the economy towards stability and prosperity, have not
been without their fair share of challenges and controversies, reflecting the inherent complexities
of managing a diverse and dynamic economy. Some challenges and critiques of these policies
include:
13
● Foreign Exchange Management: The CBN's efforts to manage Nigeria's foreign
exchange reserves have been a source of ongoing debate. Volatility in exchange rates,
concerns about the adequacy of reserve levels, and the effectiveness of interventionist
measures in the forex market have sparked heated discussions and criticism.
● Exchange Rate Policy: The CBN's multi-pronged exchange rate policy framework,
employing multiple exchange rates, has been a point of contention. Critics argue that this
system creates distortions and hinders transparency within the market.
● Inflation Targeting: Striking a delicate balance between price stability and economic
growth has proven to be a constant challenge for the CBN. Its inflation targeting
approach, while aimed at curbing inflation, has faced criticism for potentially hindering
economic expansion.
● Monetary Policy Measures: The CBN's arsenal of instruments to manage inflation and
stabilize the currency, such as interest rate adjustments and cash reserve requirements,
have elicited mixed reactions. Stakeholders often raise concerns about the potential
adverse effects of these measures on businesses and economic activity.
● Credit Control and Economic Growth: The CBN's efforts to regulate the flow of credit
within the economy have drawn both praise and criticism. Finding the optimal balance
between credit control, necessary for inflation management, and sufficient credit
allocation for economic growth remains a delicate task.
● Agricultural Credit Initiatives: The CBN's interventions in the agricultural sector
through loan schemes and other initiatives have been met with mixed results. The
effectiveness of these policies in boosting agricultural productivity has been a subject of
ongoing debate.
● Crypto Currency Ban: The CBN's controversial decision to restrict banks and financial
institutions from dealing with crypto currencies has been met with significant opposition.
Critics argue that this ban stifles innovation and limits financial options for individuals
and businesses.
● Economic Diversification: The CBN's efforts to promote economic diversification and
reduce dependence on oil have faced challenges. The effectiveness of interventions in
sectors like agriculture and manufacturing has been a subject of ongoing discussion.
14
● Communication and Transparency: The CBN has faced criticism for its
communication strategies and perceived lack of transparency. Stakeholders argue that
clearer articulation of policy decisions and rationale would enhance public confidence in
the central bank's actions.
● COVID-19 and Economic Challenges: The economic disruptions caused by the
COVID-19 pandemic have added a layer of complexity to the CBN's policy decisions.
Balancing the need for economic stimulus with concerns about inflation and external
balances has been a delicate act.
● Autonomy and Corporate Governance: There have been concerns about the CBN's
autonomy and the need for stronger corporate governance within the institution. Some
have argued that the CBN should not operate unchecked, and there should be limitations
to its regulatory powers.
● Regulatory Exercise: The CBN's recent regulatory exercise, resulting in the sack of the
board of eight major banks in the country, has created controversy within the banking
industry and among the general public and private sector, especially among the customers
of the affected banks.
● Strengthening Oversight: There have been calls for the strengthening of oversight and
the improvement of the regulatory framework to ensure that the CBN operates effectively
and efficiently.
● Impact on the Economy: The CBN's policies have been criticized for their impact on the
economy, particularly in relation to inflation and the exchange rate.
● Collaboration with Other Agencies: There have been concerns about the CBN's
collaboration with other agencies and the need for transparency in its operations.
It is important to acknowledge that opinions on these challenges and controversies are
diverse and often vary significantly among stakeholders, including economists,
policymakers, businesses, and the public. The resolution of these issues often requires a
nuanced and multifaceted approach, taking into account the dynamic nature of the Nigerian
economy and the ever-evolving global economic landscape. Overall, these challenges and
controversies highlight the need for the CBN to operate within a strong regulatory framework
that promotes transparency, accountability, and effective oversight.
15
CASE STUDIES
The Central Bank of Nigeria (CBN) actively engages in a diverse array of interventions
across various sectors, aiming to tackle specific challenges and foster sustainable economic
development. Here are some key examples of these initiatives and their intended outcomes:
1. Anchor Borrowers' Program (ABP)
*Intervention: Recognizing the crucial role of smallholder farmers in national food security,
the CBN established the ABP to empower them with readily accessible credit facilities. This
program aims to enhance agricultural productivity, bolster food production, and reduce
reliance on imported foodstuffs.
*Outcome: The ABP has demonstrably contributed to increased agricultural output,
generating higher incomes for farmers and reducing the nation's dependence on imported
food items.
2. Trade Monitoring System (TMS)
*Intervention: In an effort to promote transparency and efficiency within the foreign
exchange market, the CBN implemented the TMS. This system mandates the comprehensive
documentation of all trade transactions, enhancing the CBN's ability to effectively monitor
and manage the country's vital foreign exchange reserves.
*Outcome: The TMS has yielded significant benefits in terms of improved transparency and
accountability within the trade environment. It has also empowered the CBN to exercise
more effective control over the nation's foreign exchange reserves.
3. Real Sector Support Facility (RSSF)
*Intervention: Recognizing the vital role of manufacturing in driving industrial growth and
job creation, the CBN established the RSSF. This program provides manufacturers with
16
concessionary loans aimed at facilitating the acquisition of modern machinery and
equipment.
*Outcome: The RSSF has demonstrably contributed to the modernization and expansion of
the manufacturing sector, fostering industrial growth and generating job opportunities within
the real economy.
4. Naira 4 Dollar Scheme
*Intervention: With the goal of attracting greater diaspora remittances and bolstering
foreign exchange inflows, the CBN introduced the Naira 4 Dollar Scheme. This program
incentivizes individuals to send remittances through official channels by offering an
additional N5 for every $1 received.
*Outcome: The scheme has successfully encouraged the use of formal channels for
remittance transactions, leading to increased foreign exchange inflows and providing muchneeded support for the Naira.
5. COVID-19 Targeted Credit Facility
*Intervention: In response to the economic disruptions caused by the COVID-19 pandemic,
the CBN implemented the COVID-19 Targeted Credit Facility. This program offers financial
assistance to households, small and medium-sized enterprises (SMEs), and industries
disproportionately impacted by the pandemic.
*Outcome: The facility has played a vital role in mitigating the economic fallout of the
pandemic, providing a lifeline to businesses and individuals and supporting the continuity of
economic activity during a challenging period.
6. Cashless Policy
*Intervention: In an effort to promote efficiency, reduce leakages, and foster a more
inclusive and formal financial system, the CBN implemented the cashless policy. This policy
encourages the adoption of electronic payment systems, gradually reducing the dominance of
cash transactions.
17
*Outcome: The cashless policy has led to a significant increase in the utilization of
electronic payment systems, fostering greater financial inclusion and reducing the operational
costs associated with currency management for the central bank.
It is important to acknowledge that the effectiveness of these interventions is a continuous
process, subject to ongoing assessment and influenced by various factors, including
implementation, economic conditions, and external forces. Additionally, public and expert
opinions on their outcomes may vary. Nonetheless, the CBN's diverse set of interventions
demonstrates its active commitment to addressing specific challenges and fostering
sustainable economic development in Nigeria.
INTERNATIONAL COMPARISONS
Analyzing the Central Bank of Nigeria (CBN) through the lens of international comparisons
offers valuable insights into its operations, policies, and effectiveness. Here are some key points
of comparison across various parameters:
● Independence: The CBN exhibits operational independence, but discussions about its
level of autonomy continue. This compares to central banks like the Federal Reserve
or the ECB, renowned for their high degree of independence. Assessing the CBN's
independence against such benchmarks can provide a deeper understanding of its
decision-making environment.
● Monetary Policy Framework: Similar to many central banks, the CBN utilizes
inflation targeting as a cornerstone of its monetary policy. Comparing its approach to
other inflation-targeting central banks, like the Reserve Bank of India or the Bank of
England, can reveal similarities and potential areas for improvement.
● Foreign Exchange Management: While all central banks manage foreign exchange
reserves, their approaches can differ significantly. The CBN's active interventions in
the foreign exchange market have attracted attention. Comparing them with
interventions by other central banks, like the Bank of Japan or the Swiss National
Bank, can provide valuable context and highlight potential best practices.
18
● Communication and Transparency: Central banks vary in their communication
strategies and transparency levels. The Federal Reserve and the Bank of England,
known for their clear communication and forward guidance, offer benchmarks for
assessing the CBN's communication practices.
● Financial Stability Mandate: Ensuring financial stability is a core function of
central banks. Comparing the CBN's tools and policies for maintaining financial
stability with those of central banks like the Bank of Canada or the Reserve Bank of
Australia can shed light on its effectiveness in this crucial area.
● Digital Currency Exploration: The exploration of digital currencies by central
banks presents another avenue for comparison. The CBN's efforts can be compared to
initiatives like the People's Bank of China's digital Yuan or the ECB's exploration of a
digital euro, offering insights into potential future developments.
● Financial Inclusion Initiatives: The CBN's financial inclusion efforts can be
compared with those of central banks in similar emerging economies. For instance,
the Reserve Bank of India's policies can provide valuable comparative data on
strategies for enhancing financial access.
● Response to Economic Shocks: Analyzing how central banks respond to economic
shocks can offer valuable lessons. Comparing the CBN's response to the 2008
financial crisis or the recent COVID-19 pandemic with the actions of the Federal
Reserve or the ECB can provide insights into its crisis management capabilities.
● Policy Rate and Interest Rate Movements: Examining the CBN's policy rate
decisions and interest rate movements alongside those of other major central banks,
like the Federal Reserve, the ECB, or the Bank of England, can reveal its stance on
monetary policy and offer valuable context for understanding its economic decisions.
● Role in Economic Development: Assessing the CBN's role in economic
development can be enriched by comparing it with central banks that actively engage
in developmental functions. For instance, the Development Bank of Japan's role in
supporting economic growth offers a different model for consideration.
● Lender of Last Resort: In the euro area, the European Central Bank (ECB) and the
national central banks of euro area countries share the role of lender of last resort,
providing emergency liquidity assistance (ELA) to banks that cannot get the funding
19
they need. The ECB's Governing Council may restrict or object to emergency
assistance if two-thirds of its members vote against it.
It is crucial to remember that each central bank operates within a distinct economic context,
shaping its policies to address specific challenges and opportunities. Therefore, international
comparisons should be conducted with sensitivity to these differences in economic structures,
goals, and policy frameworks. By carefully examining these parameters, it becomes easier to
gain a deeper understanding of the Central Bank of Nigeria's strengths, weaknesses, and potential
areas for improvement, ultimately contributing to its effectiveness in fulfilling its crucial role
within the Nigerian economy.
RECOMMENDATIONS
Improvements in Central Bank of Nigeria (CBN) policies could include:
● Enhanced Monetary Policy Transparency: To bolster public trust and optimize market
participant guidance, the CBN could consider publishing detailed minutes of Monetary
Policy Committee meetings, holding regular press conferences, and proactively clarifying
policy decisions. Providing readily available data and explanations on key monetary
policy parameters and decision-making rationale could also improve information
accessibility.
● Exchange Rate Management Flexibility: To navigate economic fluctuations and foster
a market-driven exchange rate, the CBN could work on analyzing the feasibility and
potential impact of adopting more flexible exchange rate regimes while carefully
considering a gradual approach to ensure market stability and minimize disruptive
volatility.
● Strengthened Financial Inclusion Initiatives: To promote economic growth and
empower individuals and businesses, the CBN could encourage the development and
expansion of digital financial services, mobile money platforms, and agent banking
20
networks, as well as partner with financial institutions and fintech companies to facilitate
wider access and adoption of financial services.
● Proactive Banking Supervision: To maintain financial system stability and mitigate
risks, the CBN could implement risk-based supervision frameworks and utilize regulatory
technology to effectively identify and address potential risks and invest in upskilling and
training programs for supervisory personnel to stay abreast of evolving risk landscapes.
● Sustainable Development Finance Integration: To promote environmentally and
socially responsible economic growth, the CBN could develop dedicated programs like
lending instruments and incentives specifically targeted at green projects and socially
responsible businesses. They could also Integrate sustainability principles by
Incorporating environmental and social considerations into broader development finance
initiatives.
● Robust Cybersecurity Measures: To safeguard financial systems and data from
evolving cyber threats, the CBN could strengthen cybersecurity infrastructure by
investing in advanced cybersecurity tools and technologies to protect sensitive data and
systems. Implementing cyber-risk management frameworks could also aid in developing
and enforcing robust frameworks to identify, prevent, and mitigate cyberattacks.
● Enhanced Policy Coordination: To achieve broader economic goals and ensure policy
coherence, the CBN could strengthen communication and collaboration by fostering
regular dialogue and information sharing with other government agencies, particularly
the Ministry of Finance. They could also work on aligning policy objectives to ensure
monetary, fiscal and other economic policies are harmonized and mutually reinforcing.
● Effective Crisis Management Framework: To effectively navigate financial crises, the
CBN could develop and refine crisis plans by defining clear response strategies and
communication protocols for various crisis scenarios. Also, regularly testing and updating
21
frameworks and conducting simulations and exercises can help to dentify and address
potential weaknesses in crisis management plans.
● Continuous Skill Development: To maintain a highly skilled workforce and adapt to
evolving economic trends, the CBN could: Provide staff with access to training programs
and resources to stay abreast of the latest economic and financial developments and foster
a culture of knowledge exchange and collaboration among staff to enhance collective
expertise.
● Active Stakeholder Engagement: To foster a collaborative approach and gather
valuable insights, the CBN could regularly interact with government agencies, financial
institutions, businesses, and civil society organizations and actively solicit feedback on
policies and consider stakeholder perspectives in decision-making processes.
These potential enhancements aim to address the dynamic nature of the economic landscape and
empower the CBN to effectively fulfill its mandate for economic stability and sustainable
development in Nigeria.
CONCLUSION
The Central Bank of Nigeria, as earlier examined has a number of roles and duties which, in
conjunction with its regulatory bodies aim to ensure a smooth running of the economy as well as
financial growth and development for Nigerians. By adhering strictly and innovatively to these
objectives and by keeping in line with its enabling Act and other related statutes, Nigeria,
through the CBN, could be a country that everyone would, financially, be proud to be a part of.
22
REFERENCES
● Santander, (December, 2023). What is a Central bank?
●
Weidner, Jan (2017). The Organisation and Structure of Banks (Thesis). Darmstadt:
Universitäts- und Landesbibliothek Darmstadt.
● "Central Bank For Nigeria | Home". www.cbn.gov.ng. Retrieved 2021-04-27.
● "Central Bank For Nigeria: History of the CBN". www.cbn.gov.ng. Retrieved 2021-0427.
● An article by the Association of Issuing Houses of Nigeria (AIHN)
● CBN Journal of Applied Statistics Vol. 11 No. 1 (June 2020) 147-161
● CBN Journal of Applied Statistics Vol. 10 No. 2 (December 2019)
● E. O. Oloyede, The Bank Customer and Banking Law in Nigeria, Journal of African
Law, Vol. 19, No. 1/2, Spring, 1975
● G. O. Nwankwo, Bank Lending in a Developing Economy: The Nigerian Experience,
Journal of African Law, Vol. 19, Spring, 1975
23
● "Foreign reserves down, bank lending up as economy falters", Financial Times, 29
November 1982
● Ugo A. Okoroafor "Currency Restructuring in the CBN", cenbank.org, 20 September
2012
● “Is the CBN simply an agent of the federal government?”, financialnigeria.com, March
2023.
● Lender of Last Resort: Function and Examples, by Adam Hayes. Updated November 27,
2020, Reviewed by Eric Estevez
● Bordo, M (1990): “The lender of last resort: alternative views and historical experience”,
Economic Review, Federal Reserve Bank of Richmond, January issue, pp 18–29.
● “What is a lender of last resort”, 26 August 2019, europa.eu
● Management of Foreign Exchange In Nigeria By CBN, obiaks.com
● Corbet, S., and L. Yarovaya. 2020. “The Environmental Effects of Cryptocurrencies.” In
Cryptocurrency and Blockchain Technology, edited by S. Corbet, A. Urquhart, and L.
Yarovaya, 149–84. Berlin: de Gruyer.
●
“Autonomy is great to have but the CBN should not operate unchecked – Desmond
Ogba” by Onyinyechi Ukegbu, September 14 2023.
● “Is CBN Legal? What is CBN?”, Published January 8, 2020 by Vince Silowski
● “Legal aspects of current regulatory exercise of CBN” by Ade Okeaya-Inneh
24
25