Full Project – THE ROLE OF CENTRAL BANK OF NIGERIA AND MERCHANT BANKS IN FINANCIAL INTERNATIONAL TRADE IN NIGERIA
CHAPTER ONE
1.1 INTRODUCTION
The role of international in the acceleration of political and socio – economic development of any nation deserves a good study. The term international trade refers to the trading operation conducted beyond national boundaries otherwise called export and import. It enables one country t have access to those commodities they could not possible produce themselves. Thus a country is able to shift its industry to those products and services for which its resources are most suitable exporting its resources in exchange for the specially of other countries.
The Central Bank of Nigeria (CBN) plays a pivotal role in the financial international trade in Nigeria. As the apex monetary authority, the CBN is responsible for implementing monetary policies, maintaining the external reserves of the country, and ensuring financial stability (CBN, 2020). The CBN also regulates and supervises the activities of merchant banks and other financial institutions, which are crucial players in international trade. The CBN’s foreign exchange policies, for instance, directly impact the operations of merchant banks and, by extension, international trade. The CBN’s role in international trade is further underscored by its interventions in the foreign exchange market to stabilize the Naira and ensure smooth trade transactions (Uche & Ehie, 2016).
Merchant banks in Nigeria, on the other hand, facilitate international trade by providing various financial services. These services include trade financing, foreign exchange transactions, and letters of credit, which are essential for international trade transactions (Adeyemi, 2017). Merchant banks act as intermediaries between importers and exporters, ensuring that transactions are carried out smoothly and efficiently. They also provide advisory services to their clients on international trade matters, such as compliance with trade regulations and risk management.
The collaboration between the CBN and merchant banks is crucial for the growth and development of international trade in Nigeria. The CBN, through its regulatory functions, ensures that merchant banks operate within the confines of the law and maintain ethical standards in their operations (CBN, 2020). This regulatory oversight enhances the credibility of merchant banks and boosts the confidence of international trade partners. Furthermore, the CBN’s monetary policies, such as interest rate adjustments and foreign exchange management, indirectly influence the operations of merchant banks and the overall international trade environment.
However, the roles of the CBN and merchant banks in international trade are not without challenges. Issues such as fluctuating foreign exchange rates, policy inconsistencies, and infrastructural deficits often pose significant challenges to the effective performance of their roles (Uche & Ehie, 2016). Therefore, there is a need for continuous policy review and infrastructural development to enhance the roles of the CBN and merchant banks in international trade in Nigeria.
Currently in Nigeria, the export growth rate is shown and correctly perceived as a major ousted to accelerated development and in other to avert this, virile export-oriented strategies should be evolved. The import and export sector of any economy has to be nurtured, protected and promoted to enhance its positive and meaningful contributions to the survival of the economic system. Apart from government incentives, private and public companies, assistance and specialized financial institutional support, banking institutions play vital roles in financing international trade. As a result of this, it becomes necessary to study the roles of merchant banks and central bank of Nigeria in financing this international trade in Nigeria.
The central bank stored as the apex of the banking system of every country. It is the government representatives in the banking sector and acts mainly as banker to the government. It acts as banker and adviser to the federal government banks, merchant banks and other financial institutions. It also has the monopoly of issuing legal tender currency in Nigeria and materials external reserves in order to safeguard the international value of the currency, promote monetary stability and sound financial structure.
In relation to international trade the central bank determines what and how much to approve in the areas within its justification such as payment for visible and invisible imports and controls in inflow of foreign exchange earnings from export. It processes exchange control application and makes foreign exchange allocation to qualifying applicants, assist in the monitoring and in the formulation of policies designed to ensure the optimum employment and conservation of the country’s foreign exchange earnings.
Apart from the rules played by the central bank in the international trade, there are two other licensed banks that supplement its rates. The commercial bank and the merchant banks. The commercial banks are referred to as retail banks because of the nature of their operations. They operate through a network of branches throughout the country and have board deposit base. That is the commercial banks accepts deposits from all and not from a particular sources (The deposits are usually called demand deposits).
The second category of the licensed banks is the merchant banks, which are wholesale bankers in the sense that their deposits are usually in very large blocks. They operated from few branches in the commercial centers of this country. They also accept deposits from the public and private co-operations as well as wealthy individuals; their functions include medium and long-term financing, investment. Management, management of unit trust, debt factories equipment leasing and issuing and acceptance of bills of exchange.
As regards international trade the merchant banks have acquired a reputation for fast and efficient processing of international business transactions such as foreign exchange for companies engaged in importing and exporting of capital goods, the merchant banks provide services which include the processing of remittance and documentary draft for collection and letters of credit. From the foregoing, the central bank and the merchant banks are indispensable as for as international trade is concerned and as such deserved a good study.
- Definition Of International Trade
International trade is the movement of goods and services between countries such that one country is able to shift its industry to those products and services for which its resources are most suitable, exporting its resources in exchange for the specialty of other countries.
- Central Bank
It is defined by functions it performs, it is the nations bank charged with the issuing of legal tender, maintaining external reserves, supervisor of other banks, promoting of monetary stability, adviser to the government on financial matters and maintaining sound financial structure.
- Merchant Bank
A merchant bank is any financial institution that engages in wholesale banking, median and long-term financing, investment management, management of unit trust, debt fractioning, equipment leasing and issue and acceptance of bills of exchange.
1.2. Statement of the Problem
The problem statement revolves around the role of the Central Bank of Nigeria (CBN) and merchant banks in financial international trade in Nigeria. The CBN, as the apex financial institution in Nigeria, is expected to regulate, supervise, and facilitate international trade. However, there are concerns about the effectiveness of its policies and strategies in promoting and facilitating international trade. The CBN’s monetary policies, exchange rate policies, and trade financing mechanisms are often criticized for not being conducive to the growth and development of international trade (Adeoye, 2016).
Merchant banks, on the other hand, are expected to provide the necessary financial services to facilitate international trade. These services include trade financing, issuance of letters of credit, and foreign exchange transactions. However, there are concerns about the capacity of merchant banks in Nigeria to effectively provide these services. There are also concerns about the high cost of these services and the lack of access to these services by small and medium-sized enterprises (SMEs) (Ogbonna, 2018).
The problem is further compounded by the lack of a robust financial infrastructure to support international trade. The absence of a well-functioning financial market, the lack of access to credit by traders, and the high cost of doing business are some of the challenges facing international trade in Nigeria (Uche, 2017).
Furthermore, there are concerns about the regulatory environment for international trade in Nigeria. The regulatory policies of the CBN and the operational practices of merchant banks are often seen as not being supportive of international trade. There are also concerns about the lack of transparency and accountability in the operations of the CBN and merchant banks (Adeoye, 2016).
In conclusion, the role of the Central Bank of Nigeria and merchant banks in financial international trade in Nigeria is fraught with challenges. These challenges, if not addressed, could hinder the growth and development of international trade in Nigeria. Therefore, there is a need for a comprehensive review of the policies and strategies of the CBN and the operational practices of merchant banks to enhance their effectiveness in promoting and facilitating international trade.
1.3 Aims of the Study
The aim of the study is to examine the role of Central Bank of Nigeria and merchant banks in financial international trade in Nigeria. The specific objectives are:
- To examine the specific roles that the CBN and merchant banks play in facilitating international trade in Nigeria.
- To analyze the effectiveness of the policies implemented by the CBN and merchant banks in promoting international trade.
- To evaluate the impact of the CBN and merchant banks on the growth and development of international trade in Nigeria.
- To identify the challenges faced by the CBN and merchant banks in their efforts to enhance international trade in Nigeria.
1.4. Research Questions
The research questions are buttressed below:
- What specific roles do the CBN and merchant banks play in facilitating international trade in Nigeria?
- How effective are the policies implemented by the CBN and merchant banks in promoting international trade?
- What is the impact of the CBN and merchant banks on the growth and development of international trade in Nigeria?
- What challenges do the CBN and merchant banks face in their efforts to enhance international trade in Nigeria?
1.5. Research Hypothesis
The hypothetical statement of the study is buttressed below
Ho: CBN and merchant banks does not play role in facilitating international trade in Nigeria
H1: CBN and merchant banks play role in facilitating international trade in Nigeria
1.6 Significance of the Study
The significance of the study could be seen on reflecting, that international trade exists as a backbone of our economic system, which is a subset of our national economy. It is and engine of growth, a potent strategy for mutual interdependency among world nations and of course, an instrument for technological and industrial emancipation.
It is aimed at identifying the roles of the central bank of Nigeria and the merchant banks as it affect international trade. The roles as identified are observed through recommendations to be made, where these roles are not identified and encourage, development and growth of international trade will continue to elude Nigeria which will invariably restore the development of the nation as a whole.
The central banks roles in this country are often misunderstand and as a result the central bank can become a target of public criticism, particularly doing period of economic upheavals. This study has been designed therefore to show the roles it plays in building the economy. It should be noted that the central bank operated basically within the provisions of the 1958 central banks Act and its various amendments.
The merchant banks play rules germane to our economic development country to public commitment. This study aims at revealing these roles and making recommendation. The study is significant to business executives, policy makers, economist, merchants and government agencies. Through the study, attention is drawn on drawn on the roles the banks play and ways to encourage these
1.7 Scope and Limitation of the Study
This study is to cover the central bank of Nigeria and the merchant banks operations as it affects the financing of international trade in Nigeria with CBN Enugu and crown merchant bank Benin as a case study.
The shortcomings in this study include the inability of the research work to get all the necessary materials relevant and adequate for this study.
For example, during the oral interview with the staff of crown merchant bank, they maintained a high seereey which limited the scope of the information that the research waited to gather. They were afraid that if they disclose such information it would go into the hands pf their competitors. While the staff of CBN Enugu insisted and maintained in issuing general information of CBN as body.
The problem of limited times is more constraint although efforts were made to justify the work. There was equally lack of fund to travel these long distances, especially this country where transport network is poor and expensive. Also poor communication network contributed to the limit of the study.
1.8 Historical Background Development Constitution and Structure of the Central Bank Of Nigeria
CBN Enugu was traced back to the 11th day of June 1995 where its foundation block was laid by the, then governor of Eastern Nigeria, His exchange Sir Francis Akanu Ibiam G.C.O.N K.C.M.G and later commissioned on the 12th of April 1973, by the then Administrator of the East central state. His Excellency Mr. Ukpabi Asika.
Further information reveals that its parent body was established in 1958 under an Act of parliament known as the central bank Act. For many years before the establishment of the, a rudimentary monetary system had already began the process of transforming the Nigeria economy from a barter economy. The media of exchange then were however multifarious and therefore not very conducive to the operations of modern monetary system. Hence one could not really regard Nigeria as having a monetary system, at least in terms of orderliness until the establishment of the West African Currency Board (WACB) and the introduction of single currency system for West African in 1992. The establishment of the West African currency Board essentially prepared the way for the emergent modern financial system in Nigeria.
However, the W.A.C.B itself as designed could hardly be described as a monetary authority in terms of using any discretionary power to control the growth of credit and money supply in the economy.
Thus the W.A.C.B has been described as simply a positive moneychanger. This major shortcoming of the WACB provided the basic for agitation in favor of the establishment of a central bank not only in Nigeria but also in other countries operating under the West African currency Board system.
The first formed move towards the establishment of a central banks in Nigeria was in April, 1952. Then a private members motion was proposed in the then house of representative calling for the establishment of a central bank in Nigeria to perform essentially those functions generally associated with central bank. This because the colonial government considered the establishment of a central bank in Nigeria then was premature in view of the relative underdevelopment of the local financial system. The house however passed amendment motion asking the government to examine and report back to it on the possibility of establishing a central bank in Nigeria.
To this end, an adviser to the bank of England, Mr. J.L. Finisher was accordingly given the task of examining this possibility. While the finisher’s report did not favor the establishment of a central bank in the country in the immediate feature, it did, however recommend a three step programme which it hopped would eventually lead to the establishment of the CBN. These steps in charge the transfer of the WASB headquarters from London to West Africa. This it hoped would allow the local people to be move closely associated with the board and also provided them with opportunity of acquiring some experience from its operations.
The second step in fishers programme was that a Nigeria currency should be established to replace the CBN.
In addition, the programme called for the establishment of a bank of issue, which was later to develop into central bank. None of these steps was however implemented especially since its report itself did not recommend any immediate establishment of a Nigeria central bank.
In 1953, a year after the fisher’s report a World Bank mission visiting Nigeria considered the same issue and while agreeing with fisher that the establishment of a central bank Nigeria was premature however, urged for a rapid reform of the WASB to remove some anomalies in its operation. It also recommended, like fisher for the establishment of a state bank of Nigeria which would take over the issue of currency from WACB.
What would eventually lead to the establishment of the final study on the issue by Mr. J.B. Loynes who was also an adviser to the bank of England?
Loynes in his report favoured the establishment of central bank of Nigeria and his main recommendation because the basis of the CBN Act that effectively established the bank. Thus following the J.B Loynes report, the CBN was established by an Act of parliament known as the CBN Act to perform the traditional central banking functions end serve as the pivotal national financial intuitions.
With the establishment of the bank therefore, the west African currency board operations in Nigeria were placed out and taken over and refined by the bank.
Structure Of the Bank
Under the original statute of the bank, the policy and general administration of the affairs and business of the bank was the responsibility of a board of directors consisting of a governor, a deputy governor and five other directors of all whom were to be appointment by the president of the federation. The governor served as the chairman of the board and he and the deputy were responsible for the day-to-day management of the bank and were answerable to the board for their acts and decisions.
However, following the recommendation of a firm of management consultants Mckingsay international Mc. Of the United Kingdom in 1977, the structure of the bank was changed. The firm of management consultants was appointed by the bank to undertake a review of the organization structure and management protectices of the bank. The board of directors is currently made up of thirteen members that include the government and deputy governor; three of the board members are executive directors. Thus the governors are currently responsible for the day-to-day management of the bank. The management of the bank is essential in the performance of its duty by ten departmental directors all of whom are career staff of the bank and are responsible for implementing the various decisions of the board. Each departmental director is basically responsible for the activities of his department. Furthermore, the current structure of the bank is such that a group of department directors report to a specific executive director assigned to the overall supervision of the department.
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Full Project – THE ROLE OF CENTRAL BANK OF NIGERIA AND MERCHANT BANKS IN FINANCIAL INTERNATIONAL TRADE IN NIGERIA