The Central Bank of Nigeria is the highest bank in the land. As a result it has control over the circulation of money aside from other things. Every country has a central bank. In this article, we looked at ten functions of this bank.
Monetary policy
One important function of the central bank of Nigeria (CBN) is the monetary policy guidelines. On a quarterly basis, the apex bank meets in what is referred to as the Monetary Policy Committee (MPC) meeting. In the meeting various indices that affect the country's macroeconomics are discussed and a decision is reached on the monetary policy rate. The adjustment in the rate can increase or decrease money supply.
Setting guidelines for banks
Aside from the money supply function, the CBN set out guidelines for banks. This is to avoid bank managers to use the loopholes available to enrich themselves. Recently, the Central Bank of Nigeria released a guideline to stop banks from using dollar denominated funds as collateral for local loans. Aside from this, there are other guidelines the Bank has pushed forward to manage the economy.
Banker for the government
The CBN is known to be the banker of the government, especially the federal government. They keep the money of the FG as well as help in disbursing funds as authorized by the president.
Banker to commercial banks
The Bank also serves as the banker to commercial banks. Banks are expected to keep a portion of their total deposits with the Central Bank of Nigeria. Moreover, commercial banks can request for loans from the CBN to meet clients' needs for loans and other approved forms of credits.
Push for recapitalization
When there is a need for it, the Bank will push commercial, merchant, and microfinance banks to recapitalize. The goal is to ensure that there is enough shareholders fund to mitigate against risk faced in the banking industry.
Issuance of currency
Another important function for the Central Bank of Nigeria is the issuance of currency. This is different from making or producing new currencies. It ensures that money in circulation is just right. Therefore, avoids excessive cash within the country.
Control foreign exchange market
In order to ensure stability of foreign exchange, there is a need to regulate their circulation. Through banks and Bureau De Change Association, the CBN ensures the stability of this volatile market. Thereby stabilizing the economy of Nigeria.
Clearing house provision
Clearing house is an old function of the apex bank. The use of cheques requires the need for clearing houses in various states/regions of the country. The clearing houses are used to settle cheques exchanges among banks. However, with digitalisation, the use of this platform has reduced drastically. Therefore, making it possible for cheques to be cleared within a day instead of the three-day window.
Management of foreign reserves
Central banks are known to manage the country's foreign reserves. Probably the reason why it is called Federal Reserves in the United States of America. In Nigeria, the sovereign wealth fund contains the savings or reserves of the nation. This can be used to balance trades and payments in the international market. And keep the Nigeria Naira strong.
Advice the Government
The last function of the Central Bank of Nigeria discussed here is the provision of advice to the government. The CBN has finance professionals capable of advising the government on issues of borrowing and economic development.
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