If there is one topic in Economics that follows you everywhere—from the market to your school fees—it is money. But money is more than just cash in your pocket. Understanding how money works, where it comes from, and how banks control it is key to passing your WAEC exams and also surviving in real life.
Let’s break it down in a simple way.
Functions of Money
Money performs several important functions in an economy. Without it, trade would be stressful and confusing.
1. Medium of Exchange
Money is used to buy and sell goods and services. Imagine trying to exchange garri for a school bag—you may not find someone who wants garri. Money solves this problem by acting as something everyone accepts.
2. Measure of Value (Unit of Account)
Money helps us determine the value of goods and services. For example, we can say a book costs ₦2,000 while a pen costs ₦200. This makes comparison easy.
3. Store of Value
Money can be saved and used later. Instead of storing yam (which can spoil), you store money and use it when needed.
4. Standard of Deferred Payment
Money allows payments to be made in the future. For example, when someone buys something on credit, they agree to pay later using money.
Types of Money
Over time, money has evolved. WAEC may ask you to explain these types clearly:
1. Commodity Money
This is the earliest form of money. Items like salt, cowries, or cattle were used because they had value on their own.
2. Fiat Money
This is the money we use today, like naira notes and coins. It has value because the government declares it legal tender—not because of what it is made of.
3. Commercial Bank Money (Credit Money)
This is money in your bank account that you can use through cheques, transfers, or ATM cards. It is not physical cash but is widely accepted for transactions.
Roles of the Central Bank
In Nigeria, the central bank is the Central Bank of Nigeria. It controls and regulates the country’s financial system.
1. Issuer of Currency
The Central Bank is the only authority that can print and issue money in Nigeria.
2. Banker to the Government
It keeps government accounts and manages public funds.
3. Banker to Commercial Banks
Commercial banks keep part of their reserves with the Central Bank.
4. Controller of Credit and Money Supply
It regulates how much money is in circulation using tools like interest rates and open market operations.
5. Custodian of Foreign Reserves
It manages Nigeria’s foreign currencies and ensures stability in exchange rates.
6. Lender of Last Resort
When commercial banks face financial difficulties, the Central Bank can lend them money to prevent collapse.
Functions of Commercial Banks
Commercial banks are the banks we use daily, like saving money or withdrawing cash.
1. Accepting Deposits
They collect money from individuals and businesses for safekeeping.
2. Granting Loans and Advances
They lend money to customers for business or personal use.
3. Agency Services
They perform services like paying bills, collecting cheques, and transferring money.
4. Safe Custody
They keep valuable items and documents safe for customers.
Credit Creation by Commercial Banks
One important function of commercial banks is credit creation. This means banks can create money through lending.
Here’s how it works:
- A customer deposits money in the bank.
- The bank keeps a small portion as reserve.
- The rest is given out as loans.
- Those loans are spent and redeposited into the banking system.
- This process continues, increasing the total money supply.
This is why banks are very important in economic growth—they don’t just keep money, they help multiply it.
Conclusion
Money and banking may sound like big topics, but they are actually part of your everyday life. From buying snacks in school to saving money in a bank, you are already using these concepts.
For WAEC, focus on understanding the definitions, functions, and differences. Don’t just cram—try to connect them to real-life examples around you. Once you do that, questions on money and banking will feel less like exam stress and more like common sense.
If you master this topic, you’re not just preparing for WAEC—you’re preparing for life.
