Role Of Central Bank In Establishing Economy
(A Critical Review)
The role of a central bank in fostering a robust economy is multifaceted, encompassing various crucial functions. Primarily, central banks are responsible for monetary policy formulation and implementation, utilizing tools such as interest rates and open market operations to regulate the money supply and control inflation. Additionally, central banks often act as lenders of last resort, providing liquidity to financial institutions during times of crisis to maintain stability in the financial system. They also oversee the banking sector, ensuring its soundness through regulation, supervision, and deposit insurance schemes. Furthermore, central banks play a pivotal role in currency issuance and management, safeguarding the value and integrity of the national currency. Through these measures, central banks contribute significantly to establishing a conducive economic environment conducive to sustainable growth and stability.
Central bank is generally known to be concerned with he maintenance of monetary stability. This task will involves the regulations of money in circulation consistent with excessive growth is money supply rates to high
Rates of spending on domestic or foreign goods.
This research will be carried out through oral interviews. Questionnaires will also be distributed in collecting data and information . analysis will be done on the data base on the testing and proofing of hypothesis. Secondary data will also be source by the researcher; and they include journals, magazines, textbooks, periodicals etc.
The researcher as a student will experience many difficulties in the cause of collecting data which will include;
1. The time given is limited for the researcher to collect enough data on time
2. The responsible officials will not give audience to the researcher.
One of the strategies of achieving this objectives is through the adoption of the liquidity management policies / techniques which afford the CBN the use of monetary policy instrument to influence bank reserve and the growth in money supply. Also the government should grant of relief granting of loans for the establishment of industries and importation of raw materials on concessionaire import duties.
Central banks are general known to be concerned with the maintenance of monetary stability. This task involves the regulation of money in circulation consistent with the absorphic capacity of the economy axiomatically, excessive growth in money supply rates to high rates of spending on domestic or foreign goods given that domestic supply of goods and services in essentially in elastic in the short run, excess liquidity is likely to result in substantial inflationary is likely to result in substantial inflationary pressures in the economy. To the extent that spending pressures are directed towards foreign goods or (assets0 balance of payment pressures will ensure. Thus, the task of monetary authorities is to ensure that the growth in the domestic liquidity is consistent with the objectives of out-put growth, inflation and the balance of payments. This at any given time the CBN would ensure that supply of money is sufficiently optimal to sustain non-inflationary out-put rate and exchange rate stability.
One of the strategies of achieving this objectives is through the adoption of the liquidity management policies / techniques which afford the CBN, the use of monetary policy instrument to influence bank reserve and consequently the growth in money supply. The ability of the central bank to effectively control domestic liquidity depends interaction the level of the economic development particularly the state of its financial system the number and types of policy instruments available to the central banks and degree of harmonization between monetary and fiscal policies
Title page
Certification
Dedication
Acknowledgement
Abstract
Table of contents
CHAPTER ONE
1.1 Introduction
1.2 Objective of the study
1.3 Research questions
1.4 Statement of hypothesis
1.5 Statement of problem
1.6 Significance of study
1.7 Scope and limitations of the study
1.8 Definition of terms
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.0 Introduction
2.1 Meaning of central bank
2.2 The central bank Vs commercial banks
2.3 The relation of CBN with other banks
2.4 Central bank of Nigeria and its objectives and functions
2.5 Monetary policy, meaning, objectives and instruments
2.6 Fiscal policy, meaning, objectives and instruments used.
2.7 Stabilization policies, objectives and conflicts,
2.8 The role of CBN in stabilizing Nigeria economy
2.9 Problem faced by CBN ins stabilizing Nigeria economy
CHAPTER THREE
RESEARCH DESIGNS AND METHODOLOGY
3.0 Introduction
3.1 Population
3.2 Samples selection
3.3 Description of instruments used in data collection
3.4 Questionnaire
3.5 Abstract
3.6 Personnel interview
3.7 Questionnaire distribution and control
3.8 Sources of data
3.9 Procedure of data Analysis
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
4.0 Introduction
4.1 Analysis of response to questionnaire
4.2 Testing and proofing of Hypothesis
CHAPTER FIVE
SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION
5.0 Summary of findings
5.1 Recommendations
5.2 Conclusions
Questionnaire
Bibliography
INTRODUCTION
The growth and development of international trade along west African coast played a major role in extending the medium of exchange beyond trade by barter in the nineteenth century.
The ‘’native currency’’ system which relied on item such as manila, cowries, brass and copper rods had to accommodate foreign currencies such as Maria Theresa dollar and British silver coins increased trade motivated the setting up of the Bank of British West African [BWA] in 1894, thereby drastically reducing the barter system and ushering in a rudimentary form of commercial banking.
The issue of legal tender currency for the West African region was however deferred till 1912 when the west African currency Board [WACB] was established. The WACB was an offshoot of the recommendation of the EMMOE committee set up by the then secretary of state the Rt. Ifon. Lewis Harcourt. The WACB retained the services of the BBWA as its currency distribution agent. It set up four currency centers in Lagos [Nigeria] and Bathurst, now Banjul [the Gambia].The currency in circulation in West Africa increased steadily through the 1950s in response to the growing demand and increase in the World price for west African primary products such as cocoa, groundnuts and palm oil.
The WACB, however, did not have discretionary control over the money stock of the territories under the money stock of the territories under its sphere of influence. It was set up primarily to promote the influencing of export trade. Specifically, it was changed with the issue of a west African currency, the repatriation of such currencies and the investment of reserves. There was a fixed parity between the local currency and the British pound while the currency had 100 percent sterling banking. The reserves were invested in British and this way facilitated Nigeria’s international payment. As the WACB was automatically linked to the British system , the investment policy was rather conservative in the sense that sterling reserves were invested only in Britain. Moreover, the WEACB could not engage in monetary management, neither were Nigeria’s trained in the art. In order to eliminate this deficiency and promote the growth of the domestic money and capital markets, especially as the country marched toward political independence in 1960, the CBN was established by the central Bank Of Nigeria Act of 1958.
The bank commenced business on 1st July 1959 with an initial capital equivalent to N30 million. The legal f framework of the central bank has been strengthened over time to address lapses in financial system prior to the enactment of 1958 central Bank act the banking system in Nigeria was largely unregulated. Initial attempt in 1952 at streamlining the practice to banking to ensure monetary stability through the enactment of the banking ordinance did not quite address the problem. The spate of bank failures could not be stemmed, thus the central Bank Act of 1958 was enacted to formally establish a central monetary authority that would perform the traditional roles of a central bank. The 1969 Banking Act and its amendment which defined the business of banking and stipulated penalties for banking malpractice further strengthened legal framework.
To further strengthen the supervisory capacity of the bank, the central bank of Nigeria decree No24 and Bank and other financial, Institutions [Bofi] Decree N.25 of 1991 were promulgated. The Bofi Decree among other provisions centralize the functions of licensing as well as regulation of banks and other financial institution in the bank.
The current legal framework within which the CBN operates in the central Bank growth in economics development is one of the many problems facing the Nigerian economy through these problems manifesting themselves in most developing countries and yet this gets worsened with the military rule, Nigeria is a typical area in point. Hence the essence of this research is to examine the topic ‘’THE ROLE OF CBN IN STABIBILISING NIGERIA ECONOMY’.
1.2 OBJECTIVE OF THE STUDY.
The objective of this study shall be;
To ascertain why the CBN is yet to stabilize the Nigeria economy with instrument (s) of monetary and fiscal policies with their objectives and role they play in the stabilization of the economy. Also the study shall also look at why the economy of Nigeria need to stabilize and problems facing CBN in stabilizing Nigeria economy and to make recommendations where necessary
1.3 RESEARCH QUESTION
a Why is it that our economy is yet to developed
b. Does the establishment of CBN help in stabilizing Nigeria economy.
c. Does monetary
SHARE PROJECT MATERIALS ON:
Role Of Central Bank In Establishing Economy:
The central bank plays a crucial role in establishing and maintaining a stable and healthy economy. Its functions and responsibilities are diverse and impactful, often involving monetary policy, financial regulation, currency management, and more. Here are some key roles of a central bank in establishing the economy:
- Monetary Policy: One of the primary roles of a central bank is to formulate and implement monetary policy. This involves controlling the money supply, interest rates, and credit availability in the economy. By adjusting these variables, the central bank aims to achieve macroeconomic objectives such as price stability (controlling inflation), full employment, and sustainable economic growth.
- Price Stability: Maintaining price stability is a critical goal of the central bank. Controlling inflation ensures that the value of money remains relatively stable over time, allowing individuals and businesses to plan their financial decisions with confidence.
- Interest Rates: Central banks use interest rates as a tool to influence economic activity. By raising or lowering interest rates, they can encourage or discourage borrowing and spending, which in turn impacts investment, consumption, and overall economic growth.
- Lender of Last Resort: Central banks act as a lender of last resort to financial institutions during times of crisis. This means that they provide emergency liquidity to banks and other financial institutions to prevent widespread panic and the collapse of the financial system.
- Financial Regulation and Supervision: Central banks are often responsible for regulating and supervising financial institutions, including banks and non-bank financial entities. This oversight helps maintain stability within the financial sector and prevents systemic risks that could harm the broader economy.
- Currency Issuance: Central banks are the sole authority responsible for issuing and managing the national currency. They ensure the security and integrity of the currency, including designing banknotes and coins to prevent counterfeiting.
- Foreign Exchange Management: Central banks manage the country’s foreign exchange reserves and may intervene in the foreign exchange market to stabilize the value of the national currency or to achieve specific economic objectives.
- Economic Research and Analysis: Central banks conduct economic research and analysis to better understand the state of the economy and make informed policy decisions. They provide economic forecasts and data that guide government policymakers and other stakeholders.
- Promoting Financial Stability: Central banks work to maintain overall financial stability by monitoring risks in the financial system and taking measures to mitigate potential crises. This can involve setting capital requirements for banks and implementing stress tests to assess their resilience.
- Payment Systems Oversight: Central banks often oversee and facilitate the smooth functioning of payment systems, which are essential for the efficient movement of funds within the economy.
- Public Communication: Central banks communicate their policy decisions, analyses, and forecasts to the public and financial markets. Clear communication helps guide market expectations and promote transparency.
Overall, the central bank’s role is multifaceted, aiming to create a stable economic environment that fosters growth, employment, and financial well-being for the entire nation.