Every country has a central bank to oversee the economy and protect the national currency.
Most countries like Nigeria just have one central bank, often called “national” bank, but other examples also exist. In America, for an example, the Federal Reserve is the Central bank of America although every state has a different central bank operating on the state level. It becomes an exception, though.
The central banks usually operate with immeasurable amounts of money because they handle all government accounts every commercial bank is obliged to deposit certain amounts of money to the national bank. The central banks also profit from quick unsecured loans to commercial banks under their jurisdiction and traditionally are the largest banks in every country.
The most effective weapon with the national banks about the currency rates is their skill to positively change the base rates in the country. Every adjustment with the base rates affects the foreign exchange market immediately, hence, has influence on the currency rate levels.
That is why all market players watch closely every move and statement in the national banks, along with an interview of the Fed or European national Bank governor can provoke confidence in the foreign exchange market trend.
Some national banks have a tendency to intervene in the Forex market directly while others choose to avoid implementing such measures. You’ll find a contrasting view of the rewards and the harms caused by such interventions by the national banks, but these interventions happen on a regular basis and have a major impact available on the market.
In the past several years, the central bank of Nigeria governors cannot utilize efficiently their main tool for the reason that interest rates are in record low.
Some countries maintain near-zero interest levels in the past few years struggling to overcome the after-effects of the global financial crisis, for instance, Bank of England decreased the “base interest rates” to their lowest level in the history.
This unparalleled situation forced some central bankers to express some concerns that this world is on edge of a currency rate war, but such statements are a handful of what exaggerated.
Despite the fact that, the national banks remain the major government body, possessing the power to change the market direction in order to pour huge amounts of money to protect their currency. The institution of the national bank should be a place where the state manages the market.
As we have discussed above, the Central Bank of Nigeria plays a vital role for the economic health of the country. They’ve got many roles including setting lending rates, overseeing the monetary system, and ensuring global competitiveness. The Central banks play a pivotal role to managing rates of interest, inflation, as well as the overall supply of the currency.
The Central Banks have several tools at hand to ensure their end goals are met, including Open market participation and interventions. The decision that the Central Bank of Nigeria makes has extensive effects in Nigerian exchange rates, so it is important that all Nigerians pay close attention to those things like currency exchange rates and Forex rate.