1.0 Introduction
1.1 General Over View of the Study
The use of monetary and banking policies in Nigeria has always been important and it has commended wide application. Since the CBN started operations the monetary and banking policies have also been under wide-ranging economic environments.
However, the first twenty years of the establishment CBN was characterized by relative stable economic environment that was very attractive to monetary control. But the civil war of (1966-1970) and that f post war boom and reconstruction brought some challenges to the monetary authorities.
The increase in capital formation and that of domestic output in the 1960's and 1970's put the monetary policy into a less pressure. In other words, the economy was relatively stable.
After this, the over dependence of the economy on external sector and ever increasing involvement of the policy sector in economic activities that were traditionally the role of the private enterprises in a mixed economy like Nigeria brought untold pressure on the management of monetary policy.
In the 1980's, there was a change in the conduct of the monetary and banking policies. Also in the early part of 1980's, there was a problem in the international oil market as regards oil prices and expert earnings. This had adverse impact on fiscal and monetary policies. This inevitably led to the introduction of economic adjustment which eventually affected the monetary policy.
Since then, it has become a thing of great importance to use monetary and banking policies to bring adjustments in the economy.
The act that established CBN in 1958 stipulated the use of both direct monetary controls. One is not surprise that the CBN and other monetary authorities have shifted from direct to indirect monetary policy. Indirect monetary policy is a strategy in a market based economy involving the use of certain instruments such as open market operation (OMO).
Discount rate, Required Reserved Ratio etc by the CBN in a financial market to control/regulate cost of fund and the availability of bank's credit. The use of this indirect monetary policy directly effects the reserves of the banks (commercial, merchants, micro-finance, blanks, etc.)
When the structural adjustment programme (SAP), was introduced in 1986; banks' deposit and its lending rates were completely deregulated.
Generally speaking, the main aim of this study stems from the several experiences of problems of price instability, deficit in balance to payment (BOP), unbridled urban unemployment rate, general full in economic growth and development in Nigeria, The CBN as the centre of monetary authority is much responsible of dealing with these economic woes.
However, the monetary policy objectives remain the same such as:
- The moderation of inflationary pressure
- The promotion of an accelerated rate of economic growth through savings and investments.
- We also, have the achievement of low level of unemployment; and
- Lastly, the maintenance of a healthy balance of payment position.
Therefore, this work “THE EFFCTIVENESS of CBN IN MONETARY AND BANKING POLICY MEASURES” is to examine, assess and analyze the effectiveness instruments that are designed by CBN for economic stability in Nigeria.
1.2 Statement of the Problem
The statement of the problem will be looked into (3) three areas:
- To what extent has CBN stabilized price or moderated inflationary rate?
- To what extent has deficit in balance of payment been reduced by CBN?
- To what extent has CBN achieved economic growth rate?
A positive answer to these research questions shows the effectives of CBN and other monetary authorities is Nigeria over the periods.
1.3 Objectives of the Study
This study shall examine the extent CBN as of apex of monetary authority passes the test of regulating the cost, value and supply on money using the instruments of monetary policies to achieve price stability and adjustments is deficit balance of payment (BOP). These factors will show us how for CBN is doing.
1.4 Scope of the Study
Due to time constraint, and financial problem, the researcher covers only the banking sector specifically central Bank of Nigeria. The central bank as the apex monetary authority has the duty of insuring that policies are set in motion to regulates the financial sector so as to operate in the same direction with the real sector in order to realized national economic objective.
1.5 Research Questions
- Has the central Bank of Nigeria as the apex monetary achieved the test of regulating the instruments of monetary policies to achieved price stability and adjustments in deficit balance of payment.
- Has central Bank of Nigeria assisted in the reduction of inflation in Nigeria economy?
- Does central Bank of Nigeria Contribute to the development of the economy?
- Has the central bank of Nigeria become more efficient in their monetary and banking policy?
1.6 Significance of the Study
This study will make valuable exposition and contributions in the monetary and banking systems and even to the existing economic problems.
1.7 Limitations of the Study
The researcher encountered a lot of constraints for instance, instance, inability to visit central bank of Nigeria (CBN) regularly due to far distance.
Another problem being that of poor response to the questionnaire and that of harch weather like raining season, which prevented movement in most cases.
1.8 Definition of Terms
Open Market Operation (OMO):
Refers to the central bank's purchases and sales of government securities (generally short-term securities called Treasury bills) through transactions in the open market. It is one of the ways used by the monetary of country to direct central credit creation in an economy.
Bank Discount Rate:
This is the rate that the central Bank allows the commercial Banks to borrow short-term in order to meet liquidity position, reserve requirement or loan demand.
Moral Suasion:
This is a gentle measure employed by the Central Bank against member Banks, it is seen as informal technique of monetary centrol. It has no force of law. However, its disregard could result in new legislation on the subject matter.
Credit Control Or Guidelines:
This comes in the form of administrative order where by the central Bank using guidelines, instructs Banks on the cost and volume of credit to specified sectors depending on the degree of priority of each sector.
Fiscal Policy:
Fiscal policy is the government's effort to control the economy through taxation, spending and management, of the public debt. (Government here refers to that of any country in the world.
Liquidity Ratio:
Each year the central Bank of Nigeria prescribes the percentage ratio which the commercial banks must hold against their deposit liabilities. Whenever it is desired, the percentage of specified liquid assets (cash inclusive) that commercial banks must hold against their deposits.
