In this article we are going to be looking at the Center Bank, Meaning, Origin, characteristics and Functions Of Central Bank
The Meaning Of Central Bank
Central Bank is the highest financial institution in a country which implements the monetary policy of the government. It is the sole authority in the banking industry which acts as banker to the government and the commercial Banks. Central Bank controls and regulate the supply of money. Most countries have their own central banks which work closely with government in order to have means of influencing the credit policy of commercial Banks, e.g, Central Bank of Nigeria.
Origin of Central Bank of Nigeria
in West Africa, before independence, the west African currency board was the highest financial institutions which performed the functions of the Central Bank. The board control the issue of currency in the member countries. The goals was to keep the currencies of west African Nations at par with the pounds sterling. After independence, the country set up their central banks to ensure rapid economic development.
The Central Bank of Nigeria was then established in 1959. It was charged with the management of the countries currency. Supervises and co-ordinates other financial institutions in Nigeria to facilitate economic development. The report submitted by Mr JB Loynis August 1957 culminated in the establishment of the Central Bank of Nigeria.
Characteristics of Central Bank
- Central Bank is not profit oriented.
- There is only one Central Bank in a country.
- It is the highest financial institution.
- Central Bank is established by the act of Parliament.
- It is owned by the government.
- There is no transaction with private individuals.
Functions of the Central Bank
- Banker to the government: Central Bank is an agent and banker to the government. It controls public account, receives revenue on behalf of the government and makes payment from this account. Central Bank also obtain loan on behalf of the government.
- Issuance and control of Currency: The Central Bank has the right to order the printing of the currency and the issuance of it. It controls the circulation of currency, exchange of bad notes for new ones and see to the destruction of the bad notes.
- Bankers bank: The Central Bank act as banker to the banks by ensuring that the banks open account with it in order to facilitate clearing of cheques. This helps the commercial banks to have similar facilities to offer to their customers.
- Lender of last resort: The Central Bank has a duty to assist the banking system when the banks are in financial difficulties so that they can withstand the strain of excessive demands. In some countries, the banks can borrow directly from the central bank.
- Foreign exchange transaction: The central bank holds the foreign reserve of a country, and this helps in enforcing foreign exchange control regulation. It operates the exchange control which is set up to purchase and sell foreign currencies.
- Responsible for monetary policy: The Central Bank is responsible for the monetary policy of the country. It can use both the expansionist and restrictionist policies to control the quantity and value of money in circulation so as to influence the level of production and distribution of the National income.
- Formulation of rules and regulations guiding the banking industry: The Central Bank controls, regulates and supervises the components of the banking system. It lays down rules and regulations to be followed to ensure smooth operations.
- External Business: In this functions of Central Bank, the Central Bank acts as agent of the country by relating with other countries and international Financial institutions like IMF, World Bank.
- Other functions: Other functions of Central Bank includes acting as clearing house for other banks and the management of the national debt of a country.
In my next class I will be writing on characteristics and Functions of commercial Banks. To join on the class [Click Here]