January 26, 2022


Accounting + Finance Blog

Centralized Money System and its Problems

Centralized Money System and its Problems

Critics of centralized money systems believe that this system is undemocratic. Why? It gives more power to the government. Here, the central bank controls your hard earned cash. In support of cryptocurrency, this article focuses on the disadvantages of using fiat money. This doesn’t mean that the centralized system of money is totally bad.

Definition — What’s centralized money system

It is a system that allows the control and regulation of the entire money of a country in circulation to be in a central system known as the Central Bank or Federal Reserve. In Nigeria, the total fiat money in circulation is under the control of the Central Bank of Nigeria.

The Bank controls all financial intermediaries that deal with money. This includes money deposit banks, Fintech, etc. It knows the total money in circulation either cash on hand or that in the banks. Aside from this, it has the right to monitor individuals’ bank accounts. The purpose is to prevent terrorism, banditry and kidnapping in the country. However, it can abuse this power, because of the saying that power corrupts and absolute power corrupts absolutely.

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Problems with Centralized Monetary System

Corruption. When money is centralized, the government of the day can easily use such funds for its benefits instead of that of the citizens. This is true of Nigeria! You may have heard cases of politicians having large sums of money that cannot be accounted for. Millions of Naira has been seen in the “well” of a popular politician. Money disbursed by the Central Bank for projects, payment of salaries, pension and so on are not paid. This money is withheld by a single person or a group of them leaving the populace to struggle for survival. And the money may be used to sponsor terrorism (not proven) aside other vices.

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Mismanagement. This is another major problem of centralized systems. Although, the Central Bank should manage the country’s currency. We have heard of several mismanagement of such funds. Recently, the government could not account for a large sum of money reported by SERAP. An anti-corruption non-profits organization in Nigeria. Whereas, the Central Bank is known to be the bank of all government tiers as well as ministries, departments and agencies (MDAs) of the country. The Bank has also failed to keep exchange rates low claiming that the Forex market is a shallow one. This has made many of its citizens keep their money in dollars resulting in capital flight, thereby adding more problems to the injury.

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Control. This is the height of all the problems of a centralized money system. The Bank at the Central has power over all the money in circulation. Also, it is aware of all bank accounts within the country and can order the freezing of bank accounts of any person. This does not require permission from the account holder. Last year, during the anti-police protest in Nigeria. Infamously known as #EndSarsNow, the Central Bank freezes the accounts of many persons involved in the protest for many months. Leaving such persons with no money for personal use for months. Whereas, the bank accounts of corrupt politicians are flying freely on air.


To conclude, the central system of money keeps all money in circulation in the hands of a Central Bank. This is the Central Bank of Nigeria (CBN). These come with three major problems. Corruption, mismanagement and control. With too much power in one hand, such power will absolutely corrupt.