The central bank is the highest financial institution in a country which is saddled with the responsibilities of implementing the monetry policy of the government of the country it represents.
The central bank also controls and regulates the supply and flow of money in a particular country. Most countries have their own central bank which works hand in hand with the government of that country so as to have a means of influencing the credit policy of commercial banks. In Nigeria, we have THE CENTRAL BANK OF NIGERIA, which controls the activities of other financial institutions. The person in charge of the central bank is called GOVERNOR. The governor of the central bank is only answerable to the President of that country. In this article, we will discuss the various functions of central bank.
In Nigeria, the central bank governor has a tenure of five (5) years after which it can be renewed. The central bank governor can be removed from office if his/her tenure is not yet expired by the backing of the legislative arm of government of that country. The Central Bank of Nigeria has its headquarters in Abuja, the federal capital and offices across the 36 states in Nigeria.
The following are the functions of the central bank.
THEY ARE BANKER TO THE GOVERNMENT
The central bank is an agent and banker to the Government. It receives revenue on behalf of the government and also make payment from the account. The central bank can also obtain loan on behalf of the government.
ISSUANCE AND CONTROL OF CURRENCY
The central bank of a country is the only financial institution that has the right to order the printing and issuance of currency. It also has the functions of controlling the circulation of money, replacing bad notes with new ones and destroy the bad notes.
The central bank also functions as banker to other banks by making sure the banks open account with it in order to enhance clearing of cheques. This will aid commercial banks to have uniform facilities to offer to customers.
LENDER OF LAST RESORT
The central bank is saddled with the responsibilities of assisting the banking system when the banks are in financial crisis so they can withstand the problems of excessive demands. Commercial banks can borrow directly from the central bank in some countries.
FOREIGN EXCHANGE TRANSACTION
They hold the foreign reserve of a country, this will help in regulating foreign exchange which is set up to buy and sell foreign currencies.
The central bank is responsible for the monetary policies of the country it is representing. It can use either or both the expansionist and restrictionist to control the money in circulation in order to influence production and distribution of national income.
MAKING RULES AND REGULATIONS GUIDING THE BANKING SECTOR
The central bank controls, regulates and supervises all aspects of the banking system in the country. It creates rules and regulations to ensure smooth operation and also make sure that the rules are followed.
The central bank of a country acts as agent of the country by having good relationship with the financial institutions of other countries and other international financial institutions e.g; World bank, International Monetary fund (IMF), etc.
In conclusion, the central bank of a Nation is a very important agency. Both the central bank and the ministry of finance work hand in hand to drive the economy, the result of a well functioning central bank will tell on the economy of that country.