Role Of CBN In Stabilizing A Depressed Economy In Nigeria

CHAPTER ONE

1.0                                                        INTRODUCTION

1.1                                           BACKGROUND OF THE STUDY

The banking industry in Nigeria started during the colonial era with the establishment of Colonial Banks, with the primary aim of meeting the commercial needs of the Colonial Government (Toluwani, 2020). The banking system in Nigeria is regulated through the Central Bank of Nigeria. This apex bank started operation on July 1, 1959 (Toluwani, 2020). However, central bank of Nigeria was established in other to promote the growth of domestic money and capital market (Richard, 2022).

A central bank is an independent national authority that conducts monetary policy, regulates banks, and provides financial services, including economic research. Its goals are to stabilize the nation’s currency, keep unemployment low, and prevent inflation.

One of the principal objectives of central bank of Nigeria is to promote monetary stability and sundry in the financial system.

Over the years the central bank of Nigeria as conducted regular supervision and examination of banks as a means of maintaining close watch on banking corporation to ensure that banks comply with banking laws and other directive stipulated by the monetary authorities. This help to promote high leveled quality banking services are maintained.

The central bank of Nigeria took over the entire functions of banking supervision and examination in January 1966, and on the awareness that adequate and proper supervision demanded and specialized institution that would bring together an experienced team of banks and other related professionals to facilitate the functions of bank supervision.

The central bank in a developing economy performs both traditional and non-traditional functions. The principal traditional functions performed by it are the monopoly of note issue, banker to the government, bankers’ bank, lender of the last resort, controller of credit and maintaining stable exchange rate (Frederic, 2021).

But all these functions are related to the foremost function of helping in the economic development of the country.

In essence, central banks can be considered as the engine of the economy, where like the engine the power is controlled and regulated, any malfunction in the engine creates a risk and problem in the system. Therefore; central banks are extremely important tool, Wrightsman stated in defining monetary policy, “the deliberate effort by the central bank to control money supply and credit condition for the purpose of achieving certain broad economic objectives” (Wrightsman, 2020).

The objectives of establishing central bank of Nigeria were to serve as banker to the banking systems, to perform supervisory role over the commercial banks and issue currency thus requiring the supply of money in the country (Curzio, 2021). It also acts as financial adviser to the government on monetary policy and implementing the policy on behalf of the government, it involves issuing legal trader currency, maintaining the value of the domestic currency enhancing mobilization of fund according to Michael (2019).

The Central Bank of Nigeria is government bank, established to keep a country’s financial system under control and supervision.

The Central Bank of Nigeria is expected particularly in promoting economic growth by fostering the developing of money market and capital market, develop banking habits and sound financial system. In order to facilitate economic development, CBN tends to engage in activities, which extend beyond its traditional functions. In this regard, it played a unique role in the development of Nigeria economy; particularly in promoting agricultural and industrial development in general (Indranarain, 2022).

The Central Bank of Nigerian was established to act as the organ of government that should undertake the major financial operation of the government and by it’s conduct influence the behaviour of financial institutions so as to support the economic policy of the government. The CBN carries out this responsibility on behalf of the federal government through a process outlined in the Central bank of Nigeria decree 24, 1991 and the banks and other financial institution in formulating monetary policy (Todd, 2019).

In developing countries, central banks endeavour to boost and stabilize economic growth, and thus they can be considered as the driving forces of the economy. However, this work is carried out to study the role of CBN in stabilizing a depressed economy of Nigeria.

1.2                                          STATEMENT OF THE PROBLEM

Over the years, the objectives of monetary policy have remained the attainment of internal and external balance of payments. However, emphasis on techniques/instruments to achieve those objectives have changed over the years. There have been two major phases in the pursuit of monetary policy, namely, before and after 1986. The first phase placed emphasis on direct monetary controls, while the second relies on market mechanisms (Richard, 2022).

In 2021, monetary policy focused on easing the impact of shocks on the Nigerian economy which emanated from the various developments in the global and domestic economies. In the domestic economy, the burgeoning public debt portfolio also posed a considerable challenge to the effective deployment of monetary policy as the increased accommodation by both monetary and fiscal policy to support the recovery of the global economy, could also pose some financial stability risks post-Pandemic (Richard, 2022).

As the global economy pushed ahead with the recovery, new risks emerged on the horizon associated with the early commencement of monetary policy normalization which took center stage. This risk was driven by the persistent rise in inflationary pressures across several advanced economies, driven primarily by post-Pandemic pent-up demand, supply-side constraints and rising cost of energy.

Other shocks from the domestic economy resulted in broad upward pressure on prices and downward pressure on growth. Primary amongst these shocks was the heightening problem of insecurity which not only accentuated food prices as farmers were constantly unable to access their farms, but also resulted in complete destruction of entire farms in some cases. In addition to this, the economy faced considerable energy prices shocks which slowed growth further and put upward pressure on prices.

Let’s look at the poor circulation of newly redesigned naira which have negative effect on economic activity especially poor Nigerians due to its timing and short transition period. This development is a negative one for the banking sector as it weakens her monetary policy. All these have impacted Nigeria economy negatively. For all these problems, there is need for CBN intervention for overall interest of the Nigerian Economy and strengthening of financial system stability and supported the growth of the Nigerian economy.

1.3                                    AIM AND OBJECTIVES OF THE STUDY

The main aim of this work is to study the role of CBN in stabilizing a depressed economy in Nigeria. The objectives of the study are:

1. To determine if central bank promotes economic growth with stability
2. To study the role of central bank in economic development of Nigeria

• To ascertain if CBN is actually involved in the stabilization of Nigeria economy.

1. To find out if CBN has control measures over money market and capital market.
2. To identify the instrument used by CBN and its effectiveness in stabilizing the economy.

1.4                                                  RESEARCH QUESTIONS

In this research work there are so many questions that are going to be solved, they include:

1. Does the central bank promote economic growth with stability?
2. What is the role of central bank in economic development of Nigeria?

• Does CBN actually involved in the stabilization of Nigeria economy?

1. What are the control measures that central bank of Nigeria has used over money market and capital market?
2. What are the instrument used by CBN in stabilizing the economy

1.5                                 SCOPE AND LIMITATION OF THE STUDY

The scope of this work covers the role of the Central Bank in stabilizing a depressed economy such as the present economy of Nigeria. This work will further provide a brief background on the general objectives of a central bank, especially from the Nigeria perspective. The role, functions and objectives of CBN will be examined. Moreover, the problems the CBN encounters in stabilizing the economy and the role of Central Bank will be examined from 2017 – 2022.

1.6                                           SIGNIFICANCE OF THE STUDY

This study is very important for the education of banking industry for the benefit of economic growth, and development. In Nigeria today, the Central Bank of Nigeria should not be neglected without making reference to the development of the system.

This study is considering the fact that the Central Bank of Nigeria should be enlightened and educated so they can have the privilege to improve the banking operation.

This study will serve as an avenue for studying the role of CBN in achieving economic growth of a developing country through different measures. The study will serve as a means of knowing how CBN promote economic growth with stability, help in attaining full employment of resources, in overcoming balance of payments disequilibrium, and in stabilizing exchange rates.

It is with this intention that the study is to highlight the role of central bank of Nigeria in economy so that the nation will no longer experience distress economy any more.

1.7                                                  LIMITATION OF STUDY

As we all know that no human effort to achieve a set of goals goes without difficulties, certain constraints were encountered in the course of carrying out this project and they are as follows:-

1. Difficulty in information collection: I found it too difficult in laying hands of useful information regarding this work and this course me to visit different libraries and internet for solution.
2. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection.

• Time Constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.