THE DEVELOPMENT OF MONEY

Unit 1 The Concept of Money

Unit 2 The Evolution of Money

UNIT 1 THE CONCEPT OF MONEY

CONTENT
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Definition of Money
3.2 Functions of Money
3.3 Characteristics of Money
3.4 Demand for Money
4.0 Conclusion
5.0 Summary
6.0 Reference/Further Reading

1.0 Introduction
The term money is commonly used in the course of our daily activities, from our marketplaces
to our schools and even our homes; the concept of money resonates as a recurring decimal. It
has become the most popular yardstick with which we measure value and transact our business
activities.
To the lay man money may simply mean the physical cash with which he carries out his daily
transactions, but to professionals engaged in the management of money, it may refer to a
number of financial instruments which is acceptable as a medium of exchange and settlement of
debts.

2.0 Objectives
This unit furnishes the reader with a panoramic overview of the concept of money, the reader
should after studying this unit be able to
• State and explain the functions of money
 • Discuss the distinguishing features of money
• Explain the reasons for demanding money

3.0 MAIN CONTENT

3.1 What is Money?

Money is anything that is generally acceptable for the purchase of goods and services.
Economist have defined money as anything generally acceptable in payment for goods and
services or in

settlement of debts. David Humes, Adam Smith, Ricardo etc. considered money in terms of
influence in international trade relationship.

However, the definitions of money can be categorized into namely

❖ Institutional definition (Pre-Keynesian)
❖ Function definitions

Institutional Definition of money

From this Economic stand point, for money to be generally acceptable, it must backed up by the
institutional force of law. The property of money if to most important factor. Owing to this
argument the definition of money should be based on;

i. Its meaning in the sense of wealth

ii. Its meaning in the sense of property
iii. It’s meaning in the sense of education.

An example of institutional definition is that of Irving who defined money as “any properly right
which is generally acceptable in exchange”.

Functional Definition of money

This economic stand point defined money in terms of function, it performs: These functions
include
 ❖ Medium of exchange
❖ Store of value
❖ Units of Accounts
❖ Standard of deferred payment
An example of functional definition of money is;
Money is that which is universally acceptable in an economy by sellers of goods and services as
payment for goods and services and by creditors as payment for debts.

Function of Money
The function of money can be classified into
✓ Primary functions
✓ Secondary functions

Primary Function
Medium of Exchange: This means that money is generally acceptable by buyers and sellers in
exchange of goods and services (i.e. as a medium of payment). This function of money is
dependent on its acceptability (i.e. infact that the individual trust that when try want to send it,
it will be acceptable in exchange for goods and services).

As a medium of exchange individual can sell their output to money and use that money to make
purchases.
It is however important to note that money as a medium of exchange eliminate the
inconveniences and difficulties of trade by border especially the mid for a double coincidence of
want

Money as a measure of value (units of accounts): This refers to as money’s side in determining
to value or price of product. Just as height is measured with a tape in terms of meters, kilometer
so the value of goods and services can be measured in monetary terms. Money provides a
comfortable unit for comparing value regardless of size or kind, hence, money is the yard stick
with which people keep their account, determine, income, profits, losses, prepared budget etc.

It is however important to note that sine money is the yardstick by which economic choices are
measured, it is necessary that this yardstick is as fixed and stable as possible, as successive in
fluctuations in the purchasing power of money can negatively affect forecast and planning. For
example the monetary unit used in measuring value in Nigeria is the Naira, in USA it’s the Dollar,
and this units enable individuals to compare the relative value of goods and services.

Secondary Function of money

• Store of value: This means that is a store of purchasing power over periods of time. For
example it is easier for a fisher man to stop the wealth accrued from the sales of his fishes
that to stop the fish itself. The recover or holder of money can choose between sending
his purchasing power (intermediate payment) or saving it (deferred enjoyment).

Saving money assumes various forms but the most prevalent involves holding either money itself
(i.e. currency or demand deposit) or money substitutes (savings deposit, treasury bills etc).

Although there are two assets such as stock, land , jewelry and properties of which have a good
number of advantages over money as a store of value such as asset suffer the problem of
illiquidity that is the ease with they are converted into a medium of exchange. Money is the most
liquid asset because it does not meet to be converted to anything else inorder to make
exchange/purchase.

• Standard of Deferred Payment: Money plays an important role in debt settlement. The
existence of money has simplified both the landing and the repayment process. Debts are
ordinarily expressed. In monetary terms a scenario in the barter system where an
individual takes a lot in fishes, it would be difficult to set the term of repayment in
commodities other than fishes. Money base eased the process with which people can take
and making loan be its short, medium or long term.

3.3 Characteristics of Money

For money to perform its functions, it must possess certain availabilities/attributes these
attributes include;

❖ General acceptability: No item/commodity can satisfactory serve as money. If it is not

widely acceptable as a means of exchange amongst the individuals in a community,
country or region. Gold evolved to become a prevalent medium of exchange because it
 was highly demanded and universally accepted in order to ensure acceptability. Money
must be a legal tender, accepted by government for tax purpose.

❖ Scarcity: This entails money supply is limited relation to demand and the productive
capacity such that money losses its value, it also ensures that people could have to
sacrifice something (i.e. opportunity cost) in order to own money.
❖ Stability: It is important that the value of money remains relatively stable, this is very
important because money is supposed to be a store of value and a standard of deferred.
When the value of money falls i.e. the purchasing power of money is weaken both savers
and lenders loose as a Naira worth today might not be a naira’s worth tomorrow.
However the effect of inflation has makes it difficult for money to be absolutely stable.
Yet the fluctuations in the value of money should not be successive
❖ Divisibility: In order to facilitate transactions (especially small transaction a good currency
should be divisible into smaller units for example N1000 can be divided into 20 units of 5
naira notes, 10 units of 10 naira notes etc.
❖ Portability: Money should easy to more around for the purpose of business transaction.
Thus reducing the stress and cost of moving it around
❖ Cognisability: For anything to serve as money it must be easily recognized, they should
look alike such that individuals are able to identity counterfeits in circulation.
❖ Homogeneity: Closely linked to cognisability is homogeneity, this means that each unit of
a commodity must look alike as much as possible, exactness enhances people’s
confidence in a currency.
❖ Durability: This is essential because money is supposed to be a store of value of the item.

3.4 Demand for Money

This refers to the motives why economic units (i.e. household films, government) hold cash and
other monetary aggregates. The demand for money is said to be derived because economic units
do not demand money for its own sale but for the goods and services money providing.

According to John Maynard there are three (3) motives for demanding money namely;
 • Transaction motive
• Precaution motive
• Speculative motive
Transaction motive: This refers to a desire to hold money for the purpose of exchange for
currently needed goods and services that is for the purpose current expenditure and day to day
transactions.

Precaution motive: This refers to the desire hold cash in order to meet expenditure arising from
unforeseen circumstances or emergencies. Thus include all expenditure arising from event not
previously planned for such as unexpected illness, drastic fall in sales price etc.

Speculative motive: This refers to a desire to hold cash in order to take advantage of emerging
future opportunities e.g. investment opportunities in the stock exchange.
4.0 Summary
We have seen that money is anything which facilitates business transactions by acting as a means
of exchange, we now know that for an object to be called money it must possess certain
properties such as acceptability, homogeneity etc. finally we have also learnt about functions of
money and about the reasons why people demand money.
5.0 Conclusion:
Money as we have learnt, is anything generally accepted as a means of exchange and in
settlement of debts, the concept of money stretches beyond a nation's currency but negotiable
instruments. However currency notes are un arguably the most acceptable for business
transaction, hence its popularity.
5.0 Tutor- marked Assignment
o What is money? Intrinsic value and real value?
o Why do people demand for money?
o What are the basic attributes money should posses?
o Briefly discuss the functions of money?

7.0 References:
Akpan, I. ( 1999). Fundamentals of Finance. Uyo: Modern Business Press.
Akpan, E. S. (2001). Nigerian Financial Institutions; in Mbat, D. O. (ED). Topical Issues in
Finance.Uyo: Domes Associates Publishers.
 Ekezie, E. S. ( 1997). The Elements of Banking, Money, Financial Institutions and
Markets.Onitsha: AFRICAN-FEP Publishers.

Jumbo, C. O. (2003). Elements of Banking. Owerri: Barlow Publishers.

Mishkin, F. S. (1992). The Economics of Money, Banking, and Financial Markets. New York:
HarperCollins Publishers.

UNIT 2 EVOLUTION OF MONEY

CONTENT
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 The Barter System
3.2 Evolution of Money (From Commodity Money to Electronic Money)
3.3 Money Aggregates
4.0 Conclusion
5.0 Summary
6.0 Reference/Further Reading

1.0 Introduction
Money as we know it today has gone through several phases in a long evolutionary process, this
is in a bid to enhance the ease and convenience with which we carryout business transactions
and settle debts. This unit traces the evolutionary trail of payment systems from the barter
system to the present day paper and electronic money.
2.0 Objectives
The student at the end of this unit, be able to:
• Discuss the barter system and its shortcomings
 • Trace the evolutionary trail of payments systems
• Explain the concept of monetary aggregates
The Barter System
Prior to the emergency of money people engaged in a border system. In order to exchange goods
and services, this system involves exchanging merchandise (goods and services) for merchandise
(goods and services). Fishermen had to exchange some of their fishes with farmer for some of
their farm produces like beans, wheat, etc. this system provided at the beginning of civilization,
goods where in their natural state.

However the border system was limited by a number of factor which include;

i. The problem of double coincidence of want: The fisherman in need of wheat has to find
someone in possession of wheat in need of fishes. In other words, in other to trade an
individual had to find someone who has what he need and needs what he has.
ii. There was no accurate measure of value: There was no predetermined / agreed standard
measure with which buyers and sellers could exchange commodities according to their
relative values. Earn if the two person wan each other goods meet by coincidence the
freedom arises as to the proportion in which the two goods should be exchanged.
Furthermore, hunter system required the value of each goods to be stated in as many quantities
as there are types and qualities of other goods and services.
iii. Indivisibility of certain good: The border system is limited by serious challenge that is the
indivisibility of certain goods into smaller marketable units.
iv. Difficulty in making deferred payment

As a result of the numerous challenges associated with the border system various other forms of
exchange had to evolve, thus the evolution of money (or payment system). The evolution of
money can be divided into various stages.
 3.2 Evolution Of Money (From Commodity Money To Electronic Money)
Commodity money
Owing to the high demand for certain commodities such commodities come to be accepted as a
means of exchange amongst individuals in a particular community or region, given that they could
readily be exchanged for any deserved commodity, these commodities not only became a
medium of exchange but also a measure of value. Commodities such as salt, fur, cattle etc. where
widely used as commodity money.
The choice of what item that evolved to become commodity money was largely dependent on
factors like the location of the commodity, climate, cultural belief etc.

For example people living by the seashore adopted and dried fish as money people living in very
cold region adopted fur as commodity money. In a bid to further obviate the challenges of border
system commodities begun to develop more durable commodities to serve as medium of
exchange. For instance, item like coral beads, cowries, manilas and even tools and implements
where used as means of exchange.

Metallic money
With the discover of metals man began to fashion versatile, tools and weapons that was
previously made of stone with metals, metal was treasured because of its cause of
transportation, beauty divisibility etc. As a result of the popular demand for money, it became a
major standard of value. It was exchange in various forms and sizes and required assessment and
saying of its purity of cash transaction.
Overtime metal money began to gain definite forms and weight, recovering marks indicating their
value and source, of its issue. The use of gold as proto-money has been traced bank to the fourth
millennium BCE when the Egyptians used gold bars as a medium of exchange, as had also been
done early Mesopotamia with silver bars.

In the century BC the first coin bearing resemblance with modern day coins was issued in the
lonra a city in Ephesus, the metal used was electron a natural allay of gold and silver found locally.
The coins were shaped and were struck on one side with a distinguishing mark such as the image
of lion.

Gold and silver coins were minded in Greece and small ingots were in Lydia, while Chinese had
about the same time period started minting bronze coins. For many centuries, counties minded
coins mostly from gold, silver for high valued coins using copper for lesser valued coins. This
system remained in practice up to the end of the last country when cupronickel, and later other
metallic clay alloys, became used and coins came to be circulated for the fair value (extrinsic
value).

Paper money
In the middle ages, people trusted the goldsmiths who had security value to with the safe keep
of their gold and valuables most especially merchants trading in with gold and silver, in return
the smith issued receipts to deposition of such gold as evidence of deposit, which will be returned
on demand by the depositor with time these receipts which were a form of IOU showing that the
gold Smith owed the bearer of the note abstracted sum.

Come to be end to make payments, circulating from hand to hand giving rise to the origin of
paper money. The acceptance of these receipts was based on the confidence that whenever. It
was returned to the gold smith who originally issued it, it would be exchange for gold hence the
gold smith were the first bankers to issue bank notes backed by gold.

In Brazil 1810 the Banco de Brazil issued the first bank notes that had its value within by hand as
we do today with cheques. Bank note are usually rectangular instance, and of various sizes usually
devoting the culture of the issuing county, nowadays bank notes possess several security features
in order to prevent counterfeiting.

Credit money
Credit money emerged almost the same time with paper money. People kept part of their cash
as deposits with banks which they could withdraw. At the convenience through cheques,
although the cheque is not money deposit of performs the same function as money. Demand
deposits is the one the most important form of money in advanced economies. Although they
are not legal tenders what gives them acceptability. Is the convenience and confidence that will
be cashed in the bank.

Electronic money: Is broadly deposit as an electronic store of monetary value on a technical

device that may be widely used for making payments to other entities, e-money could be
hardware, based or software based, depending on the technology used to store the monetary
value. Electronic / Digital money is different from physical money although they are similar in
some respects, but electronic money allows for instantaneous and borderless transactions.

3.3 Money Aggregates

This refers to the various of a country’s money supply in order to measure the money supply in
an economy. Central Banks use monetary aggregates. The question of what constitutes money
stock has being a controversial one leading to several definition of money, the narrowest focus
on exchange medium function the broadest definition includes store of value function.

Types of money aggregates

m0 = the total of physical cash and coins in circulation
m1 = current naira value of physical cash and coins in circulation outside the banks
+ Travellers cheque currently outs to the banks
+ Demand deposits
+ Other chequeable deposits

m2 = m1+
+ Small denomination time deposit
+ Saving deposit
+ Money market deposit account
+ Overnight repurchase agreement
+ Overnight Eurodollars
+ Consolidated adjustments (adjustments to avoid double country by subtracting short
term

m3 = m2+
+ Large denomination time deposit
+ Money marketing mutual funds shares
+ Long term repurchase agreement
+ Term Eurodollars
+ Consolidated adjustment
4.0 Summary :
Over the years money has evolved from the use of cowries and other traditional
valuable resources to the use of paper and coins approved by governments for general
acceptability, particularly in settlement of debts. It's pertinent to note that in general economic
terms the term money
Can generally be aggregated, hence narrow money(M1) and Broad Money(M2) and very Broad
Money(L or M5). However, the importance is to make transactions and debt settlement
activities to be effective and efficient for all parties concern at any given point in time.

5.0 Conclusion Having known that money is anything money can buy, it becomes imperative
that for it to be generally acceptable, it must have the backing of law and the features of
convenience and durability in its transferability circumstance. Therefore for proper global
system interaction and transactions, the need for the evolution of money can not be down
played; thus leading to the wide use of both paper and electronic money( smart cards, chips
and coins) and other Internet means. There is also the belief that in the nearest future elements
as big as cards might not be used rather tokens or chips without cards, fingerprints and may be
voice sound might just become money for the use of making payments and debt settlement
effective and efficient.

7.0 References:
Akpan, I. ( 1999). Fundamentals of Finance. Uyo: Modern Business Press.

Akpan, E. S. (2001). Nigerian Financial Institutions; in Mbat, D. O. (ED). Topical Issues in

Finance.Uyo: Domes Associates Publishers.

Ekezie, E. S. ( 1997). The Elements of Banking, Money, Financial Institutions and

Markets.Onitsha: AFRICAN-FEP Publishers.

Jumbo, C. O. (2003). Elements of Banking. Owerri: Barlow Publishers.

Mishkin, F. S. (1992). The Economics of Money, Banking, and Financial Markets. New York:
HarperCollins Publishers.
 Meaning and Concept of Banking
Bank: Bank is an outfit legally registered to accept funds and other valuables for safe keeping. It
is often times known as acceptance house. As an Organisation it is a legally chartered outfit, with
stakeholders broken into shareholders, bond holders,(investors), directors, officers, other
employees including the super structures. A bank could be privately or publicly owned.

Banking: This is the process of legally organizing an outfit to create, safe-keep, manage and
transfer money from one person to another, from business to business or in a nut shell between
surplus and deficit spending economic agents/ units. The bottom line of the banking business is
an efficient payment and intermediary system. The payment system deals with how wealth
moves about, shifting from one owner to another in consideration of cash movement. Wealth is
actually transferred any moment some legal rights or property in a good is handed over to
another person. However, the focus of this unit is the payment system that considers the idea of
a promise to pay or payments that are made by one party to another with respect to certain
amount of money.
Without any equivocation the earliest form of payment method outside barter was the
straightforward payment by cash and with respect to overall transaction in our system, payment
by cash still rank highest in volume, irrespective of the cash-less/ light policy of the government;
although in terms of aggregate value of money that moves from one end to the other in a given
day it is actually not the most significant.

The issue of the transfer of large amount of funds however seems not to be an attractive option
due to the risk of theft or loss in the process of sending same to others in far-off locations. The
mechanism of moving cash over great distances using modern means of electronic transfers have
now become the order of the day and will be dealt with module.........

Banking Laws
The idea of banking and banking business is very complex and involves fiducial and trust issues in
high magnitude. Little wonder it is heavily regulated, even globally. In Nigeria, 1952 was seen as
the era of free banking, in that the only requirement for banking operations was the registration
of same via the Companies (Banking) Ordinance and This led to a banking boom (with the
establishment of well over (170 banks), because to be registered as a bank was a function of the
proposed bank's ability to raise #25,000 (indigenous banks) and #200,000 (Expatriates bank); with
20% of reserve financing coming from annual profits (Igweike,2005:6; Akpan, 1999:16)..
However, majority of the banks failed as a result of the lack of proper regulation and control at
the time, which therefore led to the promulgation of the 1958 Banking Ordinance (Cap 19).
This ordinance increased the minimum paid up capital of expatriate banks to #400,000 and the
financing rate of reserve fund for all categories of banks to 25%. (Nwankwo, 1980:51) and laid
the foundation for the establishment of banks and other financial Institutions in the country. This
also led to the establishment of the Central Bank of Nigeria, as well as the foundation for the
money and capital in the same year. In 1962, government control over the activities of banks was
improved by the promulgation of the Banking (Amendment) Act of 1962 (Cap 19). This Act
removed the loopholes of the previous banking statutes and increased the instruments of
monetary control of CBN. The enactment of the Companies Decree No 51 of 1968 made it
obligatory on all companies, including banks operating in Nigeria to be incorporated in Nigeria.
Again in 1969 all of the previous enactments were now codified with the most encompassing
banking law-the 1969 Banking Decree No.1. After more than two decades of Banking legislation,
a comprehensive framework for banking operations was put in place as the Bank and Other
Financial Institutions Decree (BOFID) No. 25 of 1991. The Decree clearly specified that,;

Any person desiring to undertake banking business in Nigeria shall apply in writing to the
Governor for the grant OFA license and shall accompany the application with the following:

(a) A feasibility report of the proposed bank;

(b) A draft copy of the memo and articles of association of the proposed bank;
(c) A list of shareholders, directors and principal officers of the proposed bank and their
particulars;
(d) the prescribed application fee; and

(e) such other information the Bank may, from time to time specify.

Section 24 of BOFID, requires the banks to maintain proper books of account with regards to all
transactions. Section 25 specifies that every bank must make returns of recorded transactions to
CBN " 28 days after the last day of each month or such other interval as the Bank may direct.
Section 27 requests banks to publish annual financial statements so as to give members of the
public opportunity to evaluate their performance.
However, the above are those having general appeal to most if not all Banking institutions.
CENTRAL BANK OF NIGERIA (CBN)

CONTENTS

1.0 Introduction
2.0 Objective
3.0 Main content
3.1 Definition of Central Bank
3.2 Historical Development of Central Bank
3.3 Organisational Structure of CBN
3.4 Functions of CBN
4.0 Summary
5.0 Conclusion
6.0 References/ further Reading

1.0 Introduction

At the epicenter of a nation’s financial system is its Central Bank, it is the apex of a country’s
banking system, empowered by law to regulate and supervise commercial bank and other forms
of Banking institutions within the country, it is also the sole issuer of the country’s legal tender.
it oversee a nation’s financial system in order to bring about a sound and conducive environment
for the achievement of the macro-economic goals and objectives.

2.0 Objectives
This module is aimed at familiarizing the student with the Nigerian Banking system, its
participants and their functions

At the end of unit the Student should be able to:

• Explain the concept a Central Bank

• List and Explain the Functions of Central Bank
• Trace the Historical development of the Central Bank of Nigeria

3.0 Main Content

3.1 What Central Bank?

According to De Kock a Central is a bank which constitutes the apex monetary and the banking
system of its country and which performs as best as it can in the national economic interest, the
following functions

i. The regulation of the currency in accordance with the requirements of business and the
general public for which purpose it is granted either the sole right of note issue or at least
a partial monopoly thereof
ii. The performance of general banking and agency for the state
iii. The custody of the cash reserves of commercial banks
iv. The custody and management of the nation’s reserves of international currency
v. The granting of accommodation in the form re discounts and collateral advances to
commercial banks, bill brokers and dealers or other financial institutions and the general
acceptance of responsibility of lender of last resort.
vi. The settlement of clearing balances between the banks.
vii. The control of credit in accordance with the needs of business and with a view to carrying
out the broad monetary policy adopted by the state

According to Samuelson a central bank is a bank of bankers. Its duty is to control the monetary
base and through control of this high powered money to control the communities supply of
money.
3.2 Historical Development of Central Bank of Nigeria
Prior to the establishment of the Central bank of Nigeria in 1959 there was a West African
currency Board (WACB) which was established in 1912, the board whose functions included:

• To issue a West African currency

• To ensure a speedy convertibility of the currency with the old silver currency.
• To provide means whereby the colonial government will share from the proceeds
of currency issue.

Although the West African currency Board performed these functions religiously, it had a
number significant limitations. These include:

• The WACB could not engage in monetary policy management as a full-fledged central
bank
• It failed to develop the Nigeria money and capital market because it sent its reserves to
London.
• The Board failed to trained Nigerian
• The board failed to invest its reserves and proceeds in Nigeria, instead it invested it
in London
• It operations were rigid because of the fixed parity between it currency issue and
the pounds

The central bank of Nigeria was established in1959 by the central bank Act of 1958, the journey
towards the establishment of CBN began in April 1952 when a motion for the establishment of a
central bank of Nigeria, as was applicable in several other countries was proposed by a private
member of the federal house of representatives, this motion gave rise to the setting up
commissions to examine and report to the house the possibility and desirability of a of
establishing a Central bank in Nigeria. The first of such commissions was the Fishers commission
of 1952, which was headed by Mr. J.L Fisher from the bank of England, the IBRD commission of
enquiry 1953 also examined the issue of establishing a central bank of Nigeria. The report of both
commission concluded that it was premature to establish a central bank of Nigeria due to the
absence of a highly organized financial system in Nigeria. The reports of the two commissions
were r ejected by the nationalist, necessitating the setting up of another commission headed by
Mr. J. B. Loynes, the Loyne’s commission favoured the idea of
establishing a central bank of Nigeria. The recommendations of the commission’s report formed
the basis of a draft legislation for the establishment of the Central Bank of Nigeria whose
functions as specified by the CBN Act 1956s and amendment of 1991 and 1998 includes:

• To maintain external reserves and safeguard the international value of the legal tender
• To promote monetary stability and a sound and efficient financial system in Nigeria
• Acting as a lender of last resort
• To act as a banker and financial adviser to the federal government.

Consequently, the bank is charged with the responsibility of administering the Banks and Other
Financial Institutions Act (BOFIA) 1991with sole aim of ensuring high standards of banking
practice and financial stability through surveillance activities, as well as the promotion of an
efficient payment system. In addition to its core functions, CBN functions, CBN has over the years
performed some major development functions, focused on all the key sectors of the Nigerian
economy.

It is important to note that the responsibility for supervising banks was shared between the
Central bank of Nigeria and the Federal ministry of finance between 1960 and 1965. In 1966, the
overall functions of bank supervision was moved to the CBN. In fact the, the FMF was saddled
with both monetary and fiscal policy measures and control, because in 1991, the FMF approved
the issue of bank licenses on the recommendations of CBN. But in 1997 when BOFID was
promulgated the responsibility of bank licensing was returned to CBN. Prior to1986, the
authorisation of foreign exchange disbursement was shared between CBN and FMF, the FMF was
in charge of the first-tier market for public sector application and allocation, while the CBN
allocated foreign exchange in respect of private applications. In a nutshell, the FMF originates
fiscal policies which influence monetary policy through government actions in the market

3.3 Organisational Structure of CBN

Organisational Chart of the CBN

SOURCE: CBN website (2017)

FLOW OF AUTHORITY IN THE CBN

THE CBN BOARD OF DIRECTORS

GOVERNOR

DEPUTY GOVERNOR

DEPARTMENTAL DIRECTORS

HEADS OF DIVISION

HEADS OF OFFICE

HEADS OF UNITS

SOURCE: 5O years of CBN decree (2009) Federal Ministry of Finance

The CBN performs its functions through its various Departments. In March 2010, the central bank
of Nigeria launched its restructuring program with a view to repositioning and reinventing CBN
for sustainable improvements of the overall Accountability, communications, efficiency and
effectiveness of the organisation.

There are 28 Departments in the central Bank of Nigeria grouped into 5 directorates in order of
related performances and Job Description to facilitate the smooth running and operations of the
Departments.

Each directorate is headed by the deputy Governor in order to reduce the pressure on the central
bank Governor.

The Directorates in the Central bank of Nigeria are:

i. Corporate services Directorate

ii. Economic policy Directorate
iii. Financial System stability Directorate
iv. Governor’s Directorate
v. Operations Directorate

3.4 Functions of Central Bank of Nigeria

Issuance of legal tender currency notes and coins:

The central bank of Nigeria has the sole legal right to issue and distribute of Nigerian currency
within the economy. This is in a bid to ensure uniformity, order, effective control and public
confidence in the currency issued. The central bank of Nigeria’s first currency issue was in 1959
(the year it commenced operation) when it issued the Nigerian pounds to replace the West
African currency Board (WACB) pounds, which was then in circulation. In1973 the Central Bank
of Nigeria moved to the metric system, when it introduced decimal currency denominations
(Naira and kobo) to replace the Nigerian Pound this was in a bid to simplify transactions, and in
1976 it went further to introduce the 20 naira bill.

In bid to checkmate the counterfeiting and to discourage currency hoarding, a currency exchange
exercise was undertaken in in 1984 where the colours of the existing currencies were swapped.
Furthermore in 1991 a currency reform was carried out which brought about the phasing out of
2 kobo and 5 kobo coins, while the 1 kobo, 10 kobo and 25 kobo notes were redesigned in
addition the 50 kobo and the 1 naira notes were coined. While the 50 naira notes was put in
circulation.

Subsequently the 100 naira notes were issued in December 1999 followed by the issue of 200
hundred naira in November 2000. While the 500 naira notes issued in 2001

Foreign Exchange Management: the central bank of Nigeria is responsible for the control and
monitoring of how the nations scarce foreign exchange are utilized within the economy. This is
to ensure that Foreign exchange is disbursed and utilized in accordance with the nation’s
economic priorities and within the annual foreign exchange budget in order to safe guard
stability of the naira and the country’s balance of payment position.

Banker and Financial Adviser to the Government:

The CBN functions as a banker to the Federal, State and local government, hence it renders the
following service to them:

i. The CBN may also act as a banker to institutions, funds and corporations set up by them.
ii. They finance the government in events of temporary budget shortfall.
iii. They advise the government on the nature, size and timing of issuing debt instruments.
iv. CBN acts on behalf of government as issuing house for its Treasury Bills, treasury
certificate and other debt instruments.

Banker and Lender of Last Resort to Banks: As a lender and banker of last resort the CBN
performs the following functions in order to assist financial institutions in resolving their liquidity
problems

i. The CBN maintains current account for deposit money banks.

ii. It also provides clearing house facilities through which instruments from the banks are
processed and settled.
iii. As a lender of last resort, it provides short term loans to banks
iv. The CBN discounts eligible bill held by banks, where they have exhausted all possible
means of acquiring supplementary funds
Promotion and Maintenance of Monetary Stability and a Sound and Efficient Financial System:
this entails the routine control of the level of liquidity in the economy in order to ensure monetary
stability. The CBN determines target growth rates of money supply, which are compatible with
its overall policy goals. It also seeks to align the country’s banking activities with the overall
target.

This involves the utilization of monetary management tools such as; Open Market Operations
(OMO), reserve requirements and discount window operations etc.

4.0 SUMMARY

The Central Bank of Nigeria was established as a result of the clamour from the Nationalist, It was
established to act as central monetary authority who responsible not just for the issue but the
proper management of the country’s currency for the overall of good of the nation’s populace
and a number of other related function such as acting as an adviser to the federal government,
in order to perform this responsibility CBN utilizes a number of tools such as Open market
Operation, use of regulatory guidelines etc.

5.0 CONCLUSION

Since its establishment in 1956 the central bank has grown not just in terms of size but also in
terms of its powers, capacity, functions and responsibility. It has moved from being under the
control of the federal ministry of finance to being an independent agency of its own with greater
capacity for monetary policy implementation and formulation. However the Nigerian financial
system has being be plagued by instability and lack of consistency in policy thrust of the CBN,
hence there is still for a further strengthening of the Central Bank of Nigeria.

7.0 References:
 Akpan, I. ( 1999). Fundamentals of Finance. Uyo: Modern Business Press.

Akpan, E. S. (2001). Nigerian Financial Institutions; in Mbat, D. O. (ED).

Topical Issues in Finance.Uyo: Domes Associates Publishers.

Igweike, K. I. (2005). Law of Banking and Negotiable Instruments. Onitsha:

AFRICANA-FIRST Publishers.

Jumbo, C. O. (2003). Elements of Banking. Owerri: Barlow Publishers.