Central Bank of Nigeria Act of 1958: A Summary

Nov 15, 2025 0

The Central Bank of Nigeria (CBN) is the central bank and apex monetary authority of Nigeria. It was established by the CBN Act of 1958 and commenced operations on July 1, 1959.

Central Bank of Nigeria Headquarters in Abuja

In this article, we’ll look at the various functions and roles of the CBN in Nigeria’s financial landscape.

Banking, Politics and Economics in Nigeria

Historical Context

Prior to the establishment of the CBN, the Nigerian banking industry was largely uncontrolled.

An enquiry within the periods of 1892 to 1952 by the then colonial administration to investigate banking practice in Nigeria led to the G. D. Paton Report which was the basis for the first Banking Ordinance of 1952. The ordinance was designed to ensure orderly commercial banking and to prevent the establishment of unviable banks.

The G.D. Paton report, an offshoot of the inquiry became the cornerstone of the first banking legislation in the country: the banking ordinance of 1952. The ordinance was designed to prevent non-viable banks from mushrooming and to ensure orderly commercial banking.

The banking ordinance triggered rapid growth in the industry, and with growth also came disappointment. By 1958, a few banks had failed.

To curtail further failures and to prepare for indigenous control, in 1958, a bill for the establishment of the Central Bank of Nigeria was presented to the House of Representatives of Nigeria.

The CBN Act of 1958

The Central Bank of Nigeria Act No. 24, 1958 was published as chapter 30 of the 1958 edition of the Laws of Nigeria and Lagos. It was fully implemented on 1 July 1959, when the CBN came into full operation and remained the primary statute governing the CBN until its repeal by the CBN Act No.24, 1991.

During its early years, the CBN faced numerous challenges - including the need to stabilise the Nigerian economy after we gained independence from colonial rule in 1960.

In April 1960, the Bank issued its first treasury bills. In May 1961, the Bank launched the Lagos Bankers Clearing House, which provided licensed banks a framework in which to exchange and clear checks rapidly. By 1 July 1961, the Bank had completed issuing all denominations of new Nigerian notes and coins and redeemed all of the British West African pounds that were circulating in Nigeria.

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But as the Nigerian economy grew and diversified post-independence, the CBN’s responsibilities expanded. It began to focus on monetary policy formulation and implementation as well as financial system regulation and development.

The major regulatory objectives of the bank as stated in the CBN Act are to: maintain the external reserves of the country; promote monetary stability and a sound financial environment, and act as a banker of last resort and financial adviser to the federal government.

The CBN's early functions were mainly to act as the government's agency for the control and supervision of the banking sector, to monitor the balance of payments according to the demands of the federal government and to tailor monetary policy along the demands of the federal budget.

A key instrument of the bank was to initiate credit limit legislation for bank lending. The initiative was geared to make credit available to neglected national areas such as agriculture and manufacturing. The central bank did not effectively curtail the prevalence of short term loan maturities.

The bank's slow reaction to curtail inflation by financing huge deficits of the federal government has been one of the sore points in the history of the central bank.

Evolution and Amendments

Over the years, the CBN has adapted to changing economic conditions and global financial trends by implementing various reforms.

The wide range of economic liberalization and deregulation measures following the adoption, in 1986, of a Structural Adjustment Programme (SAP) resulted in the emergence of more banks and other financial intermediaries.

The Banks and Other Financial Institutions (BOFI) Decrees 24 and 25 of 1991, which repealed the Banking Decree 1969 and all its amendments, were, therefore, enacted to strengthen and extend the powers of CBN to cover the new institutions in order to enhance the effectiveness of monetary policy, regulation and supervision of banks as well as non-banking financial institutions.

Unfortunately in 1997, the Federal Government of Nigeria enacted the CBN (Amendment Decree No. 3 and BOFI (Amended)] Decree No. 4 in 1997 to remove completely the limited autonomy which the Bank enjoyed since 1991.

The 1997 amendments brought the CBN back under the supervision of the Ministry of Finance. The Decree made CBN directly responsible to the Minister of Finance with respect to the supervision and control of bank and other financial institutions, while extending the supervisory role of the bank to other specialised Banks and Financial Institutions. The amendment placed enormous powers on the Ministry of Finance while leaving the CBN with a subjugated role in the monitoring of the financial institutions with little room for the Bank to exercise discretionary powers.

The CBN (Amendment) Decree No. 37 of 1998 which repealed the CBN (Amended) Decree No. 3 of 1997, provided a measure of operational autonomy for the CBN to carry out its traditional functions and enhances its versatility.

The current legal framework within which the CBN operates is the CBN Act of 2007 which repealed the CBN Act of 1991 and all its amendments. The Act provides that the CBN shall be a fully autonomous body in the discharge of its functions under the Act and the Banks and Other Financial Institutions Act with the objective of promoting stability and continuity in economic management. In line with this, the Act widened the objects of the CBN to include ensuring monetary and price stability as well as rendering economic advice to the Federal Government.

Furthermore, the regulatory powers of the CBN were strengthened by the Banks and other Financial Institutions, BOFI (Amendment) Decree, No. 38 of 1998 which repealed BOFI (Amendments) Decree No. 4 of 1997. Through the amendments, the CBN may vary or revoke any condition subject to which a license was granted or may impose fresh or additional condition to the granting of a license to transact banking business in the country.

By the Decree, the CBN's powers on banks, specifically those relating to withdrawal of licenses of distressed banks and appointment of liquidators of these banks, including the NDIC was restored.

The BOFI (Amendment) Decree No. 40 of 1999 makes the provisions relating to failing banks applicable to other financial institution. It also empowers the Governor of the CBN to remove any manager or officer of a failing bank or other financial institution.

Functions and Responsibilities

Here are some of the key functions and responsibilities of the Central Bank of Nigeria:

Monetary Policy: One of the primary roles of the CBN is to design and implement monetary policies aimed at maintaining price stability in the economy. Remember when the CBN decided to float the Naira? That was a monetary policy aimed at exchange rates. The move attempted to unify Naira exchange rates and allow the value of Nigeria’s currency to be determined by market forces.
Currency Management: As the sole issuer of legal tender, the CBN is responsible for the production, distribution and overall management of Nigeria’s currency - the naira.
Financial System Regulation: The CBN plays a vital role in regulating and supervising Nigeria’s financial system. Through its regulatory framework, the CBN ensures that banks and financial institutions operate in a safe and efficient manner. It sets standards - like capital adequacy requirements (a measure of a bank’s ability to protect depositors’ money and cushion potential losses) - to ensure that Nigeria’s banks have sufficient buffers to absorb potential losses.
Financial Market Development: Additionally, the CBN promotes the development of efficient and transparent financial markets. It oversees the operations of various market participants - including stock exchanges, bond markets and money market institutions.
Maintaining Monetary Stability: The CBN ensures the stability of the monetary system through its control and regulation of money supply.
Ensuring Financial System’s Stability: It safeguards the stability and soundness of the financial system by supervising banks and other financial institutions.
Banker and Financial Advisor to the Government: The CBN acts as the banker and financial adviser to the Nigerian government.

The CBN has also taken responsibility for nurturing the money and capital markets.

Impact and Influence

The Central Bank’s policies and actions have a significant influence on Nigeria’s economic well-being.

Most of the CBN’s monetary policies (like interest rate adjustments) aim to manage inflation effectively. By keeping inflation rates within acceptable levels, the CBN fosters price stability - providing a conducive environment for sustainable economic growth.

The CBN also strongly emphasises financial inclusion by promoting policies that ensure access to affordable financial services for all Nigerians - especially those in rural and underserved areas.

The Central Bank was instrumental in the growth and financial credibility of Nigerian commercial banks by making sure that all the financial banks operating in the country had a capital base (required reserves). This helped to ensure that bank customers just did not bear losses alone, in the event of bank failures.

Organizational Structure

The CBN operates under a well-defined organisational structure, consisting of various departments and units.

Another important department is the Banking Supervision Department. It ensures that banks comply with prudential regulations, manages risks in the banking system and promotes financial stability. This department also conducts regular inspections, assesses the financial health of banks and takes appropriate actions to address any weaknesses or risks identified.

The CBN’s Financial Markets Department oversees the development and regulation of financial markets in Nigeria.

In addition to these departments, the CBN has several other units and divisions that focus on specific areas such as research, legal services, corporate communications and internal audit.

The CBN and the Banking Sector

The Nigerian Banking Sector didn’t start out as the well-structured industry it is today.

The Banking ordinance of 1952 was introduced after a wave of failed unregulated indigenous banks in the 1940s caused huge losses for depositors. But while it helped, it was like having a wedding without a marriage counsellor. It wasn’t until the Central Bank of Nigeria Act of 1958 that the industry finally found “the one”.

Every relationship needs boundaries, and in banking, those are called laws. The CBN officiates the “marriage” between law and finance through licensing. Before a bank can operate, it must meet capital requirements, submit detailed business plans, and swear to abide by BOFIA. This is the “till revocation do us part” stage, and the CBN watches closely to ensure the vows are kept.

No lasting relationship survives without trust. The NDIC acts as the insurance policy of this marriage, guaranteeing deposits and managing failed banks in a way that protects depositors.

No romance is without the occasional interference from outsiders. In this case, the Securities and Exchange Commission (SEC) regulates the capital market side of things, ensuring fair play in securities trading.

This is my favorite part about this union. Fin-Techs. Young, tech-savvy, and charming. They bring innovation in payments, lending, and wealth management, but also risk upsetting the stability of the old romance.

When banks or financial institutions break the rules, the regulators don’t just sulk, they act. Penalties include fines, suspension of operations, license revocation, or even criminal prosecution.

The legal framework ensures that, despite occasional disagreements and temptations, Nigeria’s banking and finance sector remains stable.

The love story between Nigeria’s banking sector and its legal framework is a tale of structure, trust, and the occasional drama. With laws like BOFIA and regulators like the CBN, the romance remains strong, even in the face of modern disruptions.