Written by The Central Bank of Nigeria (CBN) is the apex monetary authority of Nigeria.
It was established by the CBN Act of 1958 but commenced operations on July 1, 1959.
The history of the Central Bank of Nigeria can be divided into two phases: the West African Currency Board Phase and the CBN phase.
The West African Currency Board Phase
Before the establishment of the Central Bank of Nigeria, the West Africa Currency Board (WACB) was established in November 1912 following the recommendation of the Emott committee.
This Board was responsible for the provision, issuance and re-issuance of the West African pound notes and coin in British West Africa(consisting of Nigeria, Ghana, Sierra Leone and the Gambia)
The West African currency board also managed the foreign exchange reserves and the exchange rate of the West African currency.
The board was based in London and had branches in the four colonies.
While the currency board gave confidence to the local money in circulation through sterling backing, it was still pertinent to note that the Board was designed to serve the purpose of our colonial master.
This was evident by the low level of economic development in Nigeria, the serious constraints in indigenous loan granting and the increasing awareness of the political and economic autonomy of the people.
The WACB was criticized on the following grounds:
- The West African Currency Board engaged in commercial banking activities, which some critics argued created unfair competition with other commercial banks.
- Critics pointed out that the West African Currency Board lacked the necessary tools and mechanisms to effectively control the supply of money in the region.
- The West African Currency Board was involved in physically distributing currency from one point to another.
- Some critics believed that the activities of the West African Currency Board were discriminatory against indigenous West African industrialists.
These factors led to the widespread agitation for indigenous Central Banks.
Thus, in the early 1950s, a lot of controversies came up about the desirability and the timing of establishing a Central Bank of Nigeria.
This culminated in the appointment of different commissions to survey the necessity of having a central Bank of Nigeria.
Among these commissions, the most prominent ones are the J.L Fisher commission which submitted its reports in 1953, the World Bank Mission which submitted its report in 1955 and the J.B Loynes commission which submitted its report in 1957.
The J.L Fisher Commission was headed by Fisher, an adviser of the Bank of England.
The commission was tasked with the responsibility of examining the desirability and practicability of establishing a Central Bank in Nigeria as an instrument for promoting the economic development of the country.
The commission submitted its report in 1953, which concluded that it was not feasible to establish a Central Bank at that time.
Fisher however gave the following suggestions:
- The Nigeria Currency Board should be established instead, to manage its currency
- The West African Currency Board should be transferred from London to the African
- A bank of Issue should be established to precede the establishment of the Central Bank
Meanwhile, as Mr. Fisher was submitting his reports in 1953, the World Bank Commission visited Nigeria.
The World Bank Mission in its report in 1955, more or less accepted Fisher’s view that the establishment of the Central Bank in Nigeria was premature.
However, the mission recommended the establishment of a “state bank of Nigeria” instead of a central bank of Nigeria.
in 1957, Nigeria gained internal autonomy, and based on the report of the World Bank Mission, the government appointed the J.B. Loynes Commission.
Headed by J.B Loynes, another adviser to the Bank of England, the commission was tasked with the responsibility of making recommendations on the establishment of the Central Bank of Nigeria (CBN), the introduction of Nigerian currency and other associated matters.
The commission submitted its report in 1957, proposing the enactment of the Central Bank of Nigeria Act and the Currency Act.
This report led to the establishment of the CBN on March 17th, 1958, through the Central Bank of Nigeria (CBN).
The CBN Phase
The Central Bank of Nigeria (CBN) commenced operations on 1st July 1959.
It played a significant role in shaping the financial landscape during its early years (1958-1972).
In its initial operational phase, the CBN achieved several milestones, such as the issuing of Treasury Bills in 1960 and the establishment of the Lagos Bankers Clearing House in 1961, thus streamlining the exchange and clearance of cheques among licensed banks.
The CBN administered the Banking Act 1958 until 1962 when the said act was amended.
Notably, the minimum share capital for banks was increased, with indigenous banks required to have £250,000 and foreign banks £250,000.
The amendment gave a seven-year grace period for existing banks to comply with the new capital Regulations.
As the seven-year grace period for compliance with the new capital regulations was ending in 1969, a new Banking decree was promulgated by the Yakubu Gowon Administration.
This decree raised the minimum paid-up capital for indigenous banks from £250,000 to £300,000, and foreign banks were required to raise capital to £750,000.
It also empowered the CBN to monitor and approve bank advertisements and control the opening and closing of bank branches.
The Banking Decree of 1969 and the CBN Act of 1958 which constitute the legal framework within which CBN operated and regulated the banks were found to be no longer adequate to cope with the change which had taken place in the banking and other financial services industry.
The economic liberalization and deregulation, occasioned by the adoption of the Structural Adjustment Programme(SAP) of 1986, led to the emergence of more banks and financial intermediaries.
This necessitated more stronger and broader regulatory power for the CBN.
Consequently, Decrees 24 and 25 of 1991 were enacted to address these needs.
The CBN, under Decree No.24 of 1991, became the sole authority for regulating banking and related financial services in Nigeria.
It gained the power to set guidelines for any entity(commercial and development banks, bureau de change, discount houses, finance houses, and insurance companies) providing financial services.
The CBN also became the sole authority for determining the Naira’s exchange rate and formulating the monetary policies of Nigeria.
The new CBN Decree also allowed for the issuance of Treasury bills of up to 184 days of maturity, aligning with practices in both developed and developing countries. It also gave the CBN the power to issue its securities for use in open market operations.
Under Decree No 25, also known as the Banks and Other Financial Institutions Decree 1991, the CBN was given the authority to license banks.
Specific provisions were made regarding the minimum paid-up capital required for each category of banks. The Decree also included other relevant provisions for regulating banks and other financial houses.
However, in 1997, the CBN Act was amended. The amendment brought the CBN under the supervision of the Ministry of Finance and extended its supervisory role to specialized banks and financial institutions.
This amendment left the CBN with limited discretionary power as it was responsible to the Ministry of Finance.
The amendment did not last long as, in the following year, the CBN (Amendment) Decree No. 37 of 1998 repealed the previous decree.
One notable feature of the 1998 decree was that it granted the CBN operational autonomy to carry out its traditional functions more effectively.
The BOFI (Amendment) Decree No. 40 of 1999 extended the provisions relating to failing banks to other financial institutions.
It also empowered the Governor of the CBN to remove any manager or officer of a failing bank or other financial institution.
The most recent legal framework is the CBN Act of 2007, which repealed all previous acts and amendments.
This act made the CBN a fully autonomous body, with the objective of promoting stability and continuity in economic management.
It also expanded the CBN’s objectives to include ensuring monetary and price stability and providing economic advice to the Federal Government.
