Of course, the CBN was established to perform certain roles and functions. As expected, many people want to know what those roles are.

In the past, Nigeria used Pounds Sterling and Pence. However, the time came when Nigeria needed to introduce her own currencies; a common practice by most sovereign nations. Sequel to that, Nigeria introduced a regulatory financial institution ‘The Central Bank of Nigeria’.

Read also: When did Nigeria start using Naira and Kobo?

The roles & functions of the CBN

Basically, the Central Bank of Nigeria is an institution that serves both as a reserve bank and a monetary authority.

In contrast to a commercial bank, the CBN has the sole power to increase or decrease the monetary base in Nigeria. Furthermore, the CBN controls the printing of naira.

Here are 7 primary functions of the Central Bank of Nigeria:

Implementing monetary policies in Nigeria

In order to ensure monetary and price stability, the CBN has several policies in place.

Basically, monetary policy involves establishing what form of currency Nigeria can use, whether a fiat currency, currency union, currency board or a gold-backed currency. The latter is not allowed for members of the International Monetary Fund, to which Nigeria belongs. Nigeria joined the IMF shortly after her independence and has remained a member ever since.

Other monetary policies include monitoring and controlling credit and exchange rate.

The ultimate goal of those monetary policies is to ensure price stability, high employment rate, and above all foster economic growth in Nigeria.

Setting the official interest rates in Nigeria

Another function of the CBN is to set the interest rate for all of the commercial banks in Nigeria.

This is done in order to regulate inflation and the country’s exchange rate. The CBN also monitors and ensures that its set interest rate takes effect and is stringently adhered to.

Read also: Interest rate for banks in Nigeria.

Issue legal tender currency (the naira)

The CBN Act Section 2 (b) authorizes the CBN to be the sole issuer of legal tender currency in Nigeria.

The Central Bank of Nigeria regulates the entire money supply in the economy. This is necessary to ensure monetary and price stability.

The Currency Operations Department of the CBN handles currency management via planning, procurement, distribution, processing, reissue and disposal of banknotes and coins.

The Government’s banker and the bankers’ bank

Another function of the CBN is to serve as a banker to the Federal Government of Nigeria. In other words, save the funds that belong to the government. With that, the government can avoid patronizing any of the commercial banks in Nigeria to save funds.

As for the CBN serving as the bankers’ bank, it simply means the CBN is a bank to all of the commercial banks in Nigeria. It acts as the lender of last resort to banks. That is, the CBN acts as the provider of liquidity to any financial institution that finds itself unable to obtain adequate liquidity in the interbank lending market and other sources have been exhausted. 

Managing Nigeria’s foreign exchange, gold reserves, and bonds

The CBN maintains Nigeria’s external reserves to safeguard the international value of the legal tender currency, which is the naira.

And similar to commercial banks, the Central Bank of Nigeria holds assets (government bonds, foreign exchange, gold, and other financial assets) and incur liabilities.

The CBN has several intervention measures in place with the aim of influencing the foreign exchange market and thus the exchange rate.

Regulating and supervising the banks in Nigeria

Another primary function of the Central Bank of Nigeria is to regulate the commercial banks and Other Financial Institutions in Nigeria.

The CBN is responsible for issuing operational licences to banks. Furthermore, it is tasked to ensure high standards of banking practice and financial stability throughout the economy. The CBN has surveillance systems through which it monitors the banks and financial activities in Nigeria.

Provide economic and financial advice to the Federal Government of Nigeria

Similar to individuals and companies, the government of Nigeria has investments. Those investments help the government generate adequate revenue to meet its ever-rising annual budget. The CBN is the financial advisor to the Federal Government of Nigeria.

Over the years, the Central Bank of Nigeria has performed some major developmental functions, focussed on all the key sectors of the Nigerian economy. Aside from the financial sector, the CBN performs developmental functions targeted at the agricultural and industrial sectors.