CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY
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.
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.
a. 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.
b. 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.
c. 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.
1.1.1 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.
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