HISTORY OF THE CENTRAL BACK OF NIGERIA


The Central Bank of Nigeria was created by the CBN Act of 1958 and commenced full operations on July 1, 1959. In 1892 - 1952, there was an urge by the then colonial administration to inspect banking practice in Nigeria. The G. D. Paton Report which originated from the enquiry was the basis for the first Banking Ordinance of 1952. The ordinance was deliberated to ensure methodical commercial banking and to avert the establishment of unviable banks.  The major rigid objectives of the central bank as stated in the CBN act of 1958 is to maintain the external reserves of the country, promote monetary stability and an excellent financial environment, and to act as a banker of last resort and financial adviser to the federal government. The Central Bank Act, 1958 and the Banking Decree 1969 constituted the legal framework within which the CBN operates and regulates banks. The central bank's responsibility as lender of last resort and adviser to the federal government has sometimes pushed it into murky regulatory waters. After the end colonial rule, the desire of the government to become pro-active in the development of the economy became visible especially after the end of the Nigerian civil war, the central bank of Nigeria followed the government's desire and took a determined effort to supplement any short falls in credit allocations to the real sector. The wide range of economic liberalization and deregulation measures following the adoption, in 1986, of a Structural Adjustment Program resulted in the emergence of more banks and other financial intermediaries. The Banks and Other Financial Institutions Decrees 24 and 25 of 1991, which repealed the Banking Decree 1969 and all its amendments, were, therefore, enacted to strengthen and extend the powers of CBN to cover the new institutions in order to enhance the effectiveness of monetary policy, regulation and supervision of banks as well as non-banking financial institutions. Unfortunately in 1997, the Federal Government of Nigeria enacted the CBN Amendment Decree No. 3 and BOFI Decree No. 4 in 1997 to remove completely the limited autonomy which the Bank enjoyed since 1991.  In 1997 the fresh amendments brought the CBN back under the direction of the Ministry of Finance. The Decree made CBN directly responsible to the Minister of Finance with respect to the supervision and control of bank and other financial institutions, while extending the supervisory role of the bank to other specialized Banks and Financial Institutions. The amendment placed enormous powers on the Ministry of Finance while leaving the CBN with a subjugated role in the monitoring of the financial institutions with little room for the Bank to exercise discretionary powers.  The current legal framework within which the CBN operates is the CBN Act of 2007 which repealed the CBN Act of 1991 and all its amendments. The Act provides that the CBN shall be a fully autonomous body in the discharge of its functions under the Act and the Banks and Other Financial Institutions Act with the objective of promoting stability and continuity in economic management. In line with this, the Act widened the objects of the CBN to include ensuring monetary and price stability as well as rendering economic advice to the Federal Government. The bank soon became involved in lending directly to consumers, contravening its original intention to work through commercial banks in activities involving consumer lending. However, the policy was an offspring of the indigenisation policy at the time. Nevertheless, the government through the central bank has been actively involved in building the nation's money and equity centers, forming securities regulatory board and introducing treasury instruments into the capital market. The CBN has also taken responsibility for nurturing the money and capital markets. In furtherance of this, the CBN introduced treasury bills in 1960, treasury certificate in 1968, and facilitated the establishment of Lagos Stock Exchange in 1961 and the capital issue committee now known as the Securities & Exchange Committee in the early 1970s. Currently the central bank's use of capitalization has given more strength to the banking sector against an earlier failure by the central bank to control the fall of many merchant banks and commercial banks in the early 1990s. By 1990, the liberalizing agenda of an adopted Structural Adjustment Programme led to unprecedented growth in the banking sector. The central bank was influential in the growth and financial credibility of Nigerian commercial banks by making sure that all the financial banks operating in the country has a capital base(required reserves). This help to make sure that bank customers just don't bare the loss alone, in the event of bank failures. However, this policy led to some Nigerian commercial banks to fail; some bank could not meet up with the capital base which was 25,000,000,000.00 Naira at the time. These banks that could not meet up had to fold up, while some that could not come up with the money on their own, had to merge with other banks in order to raise the money. This policy helped solidify the commercial banks of Nigeria, and made it impossible for individuals or organization without financial stability to operate a bank in the country. Today Nigeria has one of the most advanced financial sector in Africa, with most of its commercial banks having branches in other countries across the world.

- Nnagoziem The Vyrus Udensi

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