Central Bank Of Nigeria – The Challenges In Democratic Society

Central Bank Of Nigeria – The Challenges In Democratic Society

Central Bank Of Nigeria – The Challenges In Democratic Society

In any Democratic society they are bound to be some challenges of which Central Bank is not left out.

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In the course of this study we are to look at the challenges of central bank in our present day society we are made to know that banking sector has a long way to go in planning its expected role in the development and growth of the economy.

Meanwhile, some of its challenges are the recapitalization policy and this has help fund the economic activities in the country.

Secondary is the high rate of interest. In a competitive economy, no bank wine like to lower its factors in the economy allows. If interest rate has to come down, the signal must emanate from the widing economy environment.


The proposal to create a control bank of Nigeria was first made in the House of Representatives in Lagos on 21 March, 1952. But it was not 9th April. The financial secretary to the Nigerian government amended the motion thus:

That as a practical means of marshalling the financial resources of this coming for the purpose of aiding commercial development in all its phases, the government should examine the possibility of establishing two central bank, and report to the House as soon as possible”.

This was accepted and the government invited Mr. J. L. Fisher, on adviser to the Bank of England, to examine the desirability and practicability of establishing a central Bank of Nigeria for pointing the economic development of the country’. Mr. Fisher, reporting in 1953, through that the financial environment hardly existed for a control bank to function in Nigeria other than semi automatically as a bank issue: that it was highly doubtful if a control bank could be adequately staffed; and that a central bank would be too expressive for the country at that time. He therefore recommended that the currency Board system should be continued, instead of establishing a current Bank. However, the international Bank Mission, which visited the country later in 1953, supported the creation of a “state Bank of Nigeria”, in view of the constitutional progress towards self-government, and its report reviewed interest in the scheme.

In 1957 the federal government invited Mr. J. B. Loynes to advice on a wide range of banking problems in connection in with the establishment of a central bank, in the light of the recommendations made by the international Bank Mission. On the whole this report favored this proposal, and the central bank of Nigeria ordinance was passed in 1958. It constrained the following main provisions, which closely followed Mr. Loyne’s recommendation.

(1) Debate in the house of Representatives

March to April 1952

(2) Report on the Desirability and practically of establishing a central bank in Nigeria for promoting the economic development of the country, Lagos, 1953.

(3) IBRD, economic Development of Nigeria, pp. 56 – 9.

(4) The central bank of Nigeria Ordinance no. 24 of 1958.

The main objectives of the Bank are:

 To issue legal tender currency ion Nigeria.

 To maintain external reserve in order to safeguard the international value of the currency.

 To promote monetary stability and or sound finance structure in Nigeria and;

 To act as Bankers and financial adviser to the federal Government.

The authorized capital of the Bank shall be one million five hundred thousand Nigerian Pounds of which seven hundred and fifty thousand pounds shall be subscribed and fail at par by the federal government on the establishment of the Bank.

The unit of currency in Nigeria shall be the Nigerian pound which shall be divided into twenty shillings each stilling being divided into twelve pence.

The parity of the Nigerian pound shall sterling.

The relationship between the control bank and other was defined:

‘The Bank may act as banker to other in Nigeria and abroad, and shall however necessary seek the co-operation of, and co-operative with other banks in Nigeria.’

Building operations began in earnest towards the end of 1958, and on July 1959 the central bank of Nigeria was formally opened, with Mr. F. P. Feriton, an adviser to the bank of England as its first governor.

The bank issued the new Nigeria currency notes and coins in 1958, and continued to manage the West African currency board notes and coins units they were completely withdrawn. The central Bank also supervised the management of the country’s external reserves and assisted the government in creating a money market by issues of treasury bills. It served as the banker’s bank, and exercised some control over the credit activities of the commercial banks. Above all, the central Bank was the banker agent and financial adviser to the Nigerian government.

2.1 Banking Distress in Nigeria According to Ologun (1994) banking distress could be said to be the inability of a bank to meet its obligations to its customers, owners, state holders and the economy, occasioned by felt weakness in its operation which has rendered it either illiquid or insolvent. From the above definition, a state of distress prevails when bank in enable to meet its financial obligation state as of depoisition funds, honoring nature obligations etc. And such site could be caused by the presence of a work deposit, poor capital base, poor management, upset mismatch or even weaknesses in operational conditions. Thus, the banks performance on a contrite basis does not conform faviourable with established parameters for evaluating the financial health of banks as specified by the regulatory authorities.


The banking distress in Nigeria could be traced to the free banking era as was case before the introduction of the Banking ordinance in 1952. thus about nine banks failed only in 1952 with the introduction of the banking ordinance of that year. The causal factor that year responsible for these failures tincludes the prescription of a minimum fail up capital requirement, lack of experienced and skilled manpower, the unfavorable competitive environment, the absence of a regulatory and supervisory authority, outright fraud, lack of acceptable frudental requirement and the lack of the right banking orientation among the operations.

Hence, the emergence of the control bank of Nigeria in 1959 introduced a regulatory frame work into the government out promoting a sound financial structure and monetary stability in Nigeria.

Furthermore, the banking distress in Nigeria industries which reached an alaming position in the mid 1990s became man if from 1959 following the withdrawal of public sector deposite from the commercial banks to the central bank of Nigeria. The withdrawal of or total of over billion from the banking system exposed the nature of the health of the banks in the system. Another bane of Banking distress is insider Abuses, credit indiscipline and fraud. The high level of insider abuses, fraud by the top management and credit discipline such as flagrant disregard of the lending policies of the banks and the conversion of he banks assets to personal assest bring about banking distress.


The on-going reform in the financial sector, the CBN of Nigeria had recorded a lot of interference and directive from present government. This can be tested and proved by certain setbanks recorded within the previous time. Thus, there is no doutbt that the present move to re-engineer these sub-sectors of the financial industry stems from the apex bank’s stans tro encourage players in the fields to generate confidence from depositors currently activities in the mortgage are aripped by problems, which include long term loans needed for housing, development.

However, as a result of constant reactions by the senate as regards to the present consolidation exercise the senate has been called upon to be mindful of their utterances and or interference with regards to the policy announcement which required bank to raise their capital base to #25 billion or close stop. This is in view of the fact that all monetary policies and issues such as the current one, are statutory functions that fail in the preview of the executive arm of government and therefore do to require bank direct intervention of the senate. With the above, the publicity secretary of the Bank directors Association of Nigeria (BDAN), Mr. Moses O. Ihonde in his reaction to the development recently, urged the senate to exercise caution so as not to make unnecessary statement, detrimental to the necessary streaming for proper economic planning.

Last time the senate reported to have decried he new policy and has allegedly promised to summon the present of CBN governor prof. Soludo to appear before it, to explain the action of the apex bank.

According to Ihonde, the remark by the Senate sounds like pressure from outside. We should be careful to look at the policy from the objectives of the CBN and view point.

Finally, the reform exercise of the CBN had been interfered by some hindrances in one way or the other as mentioned above.


Money laundry is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of illegal activities. Money laundry have been considered a major threat to financial institutions and the economic stability of all countries of the world.

Thus, governments all over the wotld have introduced various legislations to prevent it, including specific money laundering offences. Although, the increasing integration of the worlds financial systems and its attending level of technology has reduced free movement of capital but money lenders can still make use of this system to hide the proceeds of their crime. They could do this fast moving their criminally derived cash between national judiction, thereby complicating the task of tracking and confiscating their assets. It is because of this that government recognised that there is need for close international co-operation to counter money laundering. The main objectives of the launderer is to “transform dirty money into seemingly clean money or other assets in such a way as to leave as little trace as possible to the transformation. Disassociate the each from its criminal origin to avoid detection from the authority by transforming it into other assets forms such as foreign currency traveler’s Cheques, postal order, etc. In the money laundering process of integration, it will be virtually impossible to distinguish between ‘clean’ or dirty money into seemingly clean money or other assests in such a way as to leave as little trace as p[ossible to the transformation. A major result of international concerns about he extent of money laundering was the creation of the financial action task force (FATF), a body whose duty is money laundering legislation and to recommend additional requirements.

From the scenario above, it is obvious that the crave impact of money landering on the economic society and moral fabric of the nation cauced by the infiltration of dirty money or proceeds from soles, smuggling and the activities of organized crime, inside trading drying trafficking, bribery, tax related economic embezzlement, cyber crimes and other fraudulent business are critically alarming. Moreso, in a newspaper interview with the director of Operations, Economic and Financial crime commission (EFCC), Mr. Ibrahim Lamorde, said that the infiltration of proceeds from these sources of dirty money into the financial institution acquires control of large sector of trance destroy the good functioning of a good financial system as well as undermine its interity.


Monetary policy can be defined as the deliberate control or regulation of money supply and the rates to try to effect sa change in employment, inflation or balance of payments.

Thus, monetary policy by controlling interest rate, can effect changes in the capital account of or country’s balance of payments since relatively will attract funds from other countries in the scort term.

The sources of money supply in Nigeria include the central bank of Nigeria which issues legal tender currency and the commercial banks that create deposite money.

The central Banks of Nigeria uses a number of instruments to regulate money supply in the economy. These instruments are mainly used to control the money creating powers of the commercially banks. They include:

(i) Open market Operation is the buying and selling of government securities on the open market.

(ii) Bank rate; This is the rate of interest at which the central banks lends to the banking system, which will in turn affect the radio at which the commercial banks lend to their customers. Thus, in practice, the bank rate is the rate at which the central Bank would rediscount first calss bills of exchange presented to it by the discount houses.

(iii) Minimum cash radio: This is the radio of bank cash holding to the total deposit liabilities. It is also often referred to as liquidity radio. There is a minimum level of cash reserves that commercial banks must keep with the central banks. Thus, it the central bank raises the minimum cash ratio, the commercial banks will have to reduce their lending and vice versa.

(iv) Special; deposits reters to cash deposited at the central Bank of Nigeria by the commercial banks in response to a special directive.

The scheme is designed to reduce banks lending in which case the b anks are instructed to increase their gross deposits at the CBN.

(v) Request and directives that is mural suasion. Control banks usually have a stationary right to make request to other banks and it necessary to issue directives to ensure that there are carried out.

Monetary policy can be expansionary monetary policy is when the central Bank increases money supply in order to force down interest rate. While concretionary monetary policy occurs when the monetary authorities reduces money supply in order to force up interest rate.

Conclusively government uses monetary policy to reduce the extent of fluctuation in the economic activity.


1. IBE J. N. O. (2002) Fundamentals of Monetary theory and policy. Glajoh and Company, 19 Leach Road, Abakaliki, Nigeria p.p 152-154

2. Anyanwuocha R. A. I. (2001) Fundamentals of Economics. African Feb Publishers limited, Book House Trust, 1 African –Feb Dnie, P. M. B. 1639 Onitsha Nigeria. Pp. 200-201 and 127.

3. Onwukwe N. U. (2003) Fundamental of Macro Economics, printwell press limited, 18 Ogoja Road Abakaliki, Ebonyi State p 126-131.

4. Ugwunyi Charles U. (2004) Basic principle of Finance. Great AP Express publishers ltd, Nsukka Nigeria pp. 84-85.

5. Anyanwu, et al, J. C. (1991) The Structure of the Nigerian Economy (1960-1997) 2nd Edition Joanee Educational publishers ltd. 51 Awka Road Onitsha Anambra State, Nigeria pp. 139-149 & 272-284.

6. Mankw, N. Gregory (1998) Principle of Econoics. The Dryden press, Har Court Brace Collage Publisher’s, United State of America pp. 707- 709.

7. Onwukwe, et al, N. U. 92002) Morden principles of Economic 1st Edition, nwamazi printing & pub. Co ltd. No. 9 Ekwulumili Street Azuiyikwu Abakaliki, Ebonyi State pp. 133-135

8. The Weekend vanguard, July 24, 2004. Weedend Vanguard Business p. 6.

9. The Sunday vanguard p. 11 & 32

10. The Weekend Vanguard, july 17, 2004 the weekend vanguard news p. 3.

11. The guardian, Friday, July 9, 2004, March report p. 23.

12. The guardian, Monday, July 12, 2004. Executive brief p 56.

13. The Vangard, Monday, September 13, 2004 Vanguard conference hall p. 31

14. The Guardian, Thursday, June 2, 2005 Money Line p. 21.

15. The Guardian, Thursday, October 26, 2005 Money Watch p. 27 & 29.

16. The Guardian, September 28, 2005 Money Watch p. 27.

17. The Guardian, Wednesday, July 13, 2005 Money Watch p. 25.

18. Banking Distress in Nigeria p. 360 – 363

19. & 366-368.

Central Bank Of Nigeria – The Challenges In Democratic Society

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