Role Of Central Bank In The Economic Growth
The central bank, often regarded as the linchpin of a nation’s financial system, plays a crucial role in fostering economic growth. Functioning as the custodian of monetary policy, it wields influence over key economic variables. Through its control over interest rates, the central bank endeavors to strike a balance between inflation and unemployment, two pivotal factors in economic stability. By regulating the money supply and supervising financial institutions, it contributes to the resilience of the banking sector, thereby fortifying the financial infrastructure. Moreover, the central bank’s interventions in currency markets and its management of foreign exchange reserves contribute to sustaining a stable exchange rate, fostering international trade. In essence, the central bank’s multifaceted role encompasses not only the maintenance of price stability and financial system integrity but also extends to the facilitation of a conducive environment for sustained economic growth.
Title Page
Approval Page
Dedication
Acknowledgement
Table Of Contents
Chapter One
1.1 Statement Of The Problem
1.2 Rationale Of Study
1.3 Significance Of The Study
1.4 Definition Of Terms
Chapter Two
2.0 Review Of Related Literature
2.1 The Establishment Of C.B.N
2.2 History Of The Banking Industry
2.3 The Central Bank Of Nigeria And The Banking Industry
2.4 The Central Bank The Financial System
2.5 The Role Of The Central Bank In Nigeria
Chapter Three
3.1 Statement Of Hypothesis
3.2 Research Methodology
3.3 Source Of Data
Chapter Four
4.1 Data Presentation
4.2 Analysis Of Data
Chapter Five
5.1 Summary
5.2 Conclusion
5.3 Suggestion (Recommendation)
Bibliography
INTRODUCTION
1.1 STATEMENT OF PROBLEMS
Investigation are been carry out in this project, central bank of Nigeria is a financial institution establishment by the law (Act of parliament) vested with power of promoting monetary stability sound financial system by issuing legal tended currency, maintain the value of domestic currency etc. CBN source of funds were form share capital, general reserve, currency in circulation deposit by federal government (FG) deposits by the sate government and deposit by banking industries etc.
Central bank of Nigeria (CBN) is supposed to contribute to the economy development of a Nigeria in the following ways. Such contribution done by CBN were issuing of currency notes, funding agriculture sector, funding banking industries, prevention of bank crisis etc. Also CBN is suppose to contribute to economic growth through monetary policy in the economy such as bank rate, open market operation (OMO) legal reserve ratio, special deposit and moral suasion etc. CBN have constitute economy growth by using money market instrument like treasury certificate, banker unit find etc.
In this project the area I want to work on is monetary policy. The aspect to study is bank industries that CBN had aid to growth and development.
1.2 RATIONALE OF STUDY
In this project, the rationale of study will involves in the aspect area which the central bank of Nigeria aid economic growth and development of banking industries in Nigeria. This can be carry out in the following ways.
1. To find out whether CBN only financial institution authorial to issued currency and distribution within the banking industries.
2. To know, if CBN uses monetary policy to control activities of other banks within the banking industries.
3. To find out how CBN will supervision of finance Houses within the economic growth and development of banking industries in Nigeria.
1.3 SIGNIFICANCE OF STUDY
The importance of this project will enhance the following in the economic growth and development of Nigeria through the following ways.
1. This project, will make commercial banks, other financial institution to understand berried facing why customers are not operating in their bank.
2. This research project work will enable federal government to take active participation in the banking system.
3. This project work, will help the private and public company to known need of money market in order to aid economic large scales.
4. This research work will enable banker to known minimum and maximum amount of money that their customer aspect to deposit within the bank.
5. This project work will also help students both national diploma and higher national diploma who studies banking and finance as a course acquired knowledge on their course of studies.
6. This written work in this project, will motivate central bank of Nigeria’s staffs to work actively in order to promote sound financial system of the central bank of Nigeria can engaged in growth and development in economy system in Nigeria. This would help to establish maintain and improve lines of communication a bank and its public are aware and understand a banking system can be hope for with room still for the improvement in economy system in Nigeria
1.4 DEFINITION OF TERMS
In order to make this work a bit clear certain terms will be defined
1) BANK: Any person who carries on banking business and includes all the financial institution such as commercial bank mortgage bank on acceptance house and discount house etc.
2) MONETARY POLICY: It is an instrument used by central bank to control inflow and outflow of money in the Nigeria economy.
3) MONEY MARKET: This is a market for borrowing and lending short, medium term loan or funds.
4) OPEN MARKET OPERATION: This weapon involves the sale and purchase of securities, bills bonds, and government securities by the CBN
5) LEGAL RESERVES RATIO: This is minimum percentage of deposit that commercial bank is required by law to deposits with the CBN.
6) CREDIT GUIDELINES: This is a prescribed guidelines both with regard to the amount of loan and advance on commercial and merchant bank would
Role Of Central Bank In The Economic Growth:
The role of a central bank in economic growth is multifaceted and crucial. Central banks are responsible for implementing monetary policy, regulating financial institutions, managing currency issuance, and often overseeing the stability of the financial system. Here are some key ways in which central banks contribute to economic growth:
- Monetary Policy: Central banks use monetary policy tools such as interest rates, reserve requirements, and open market operations to influence the supply of money and credit in the economy. By adjusting these tools, central banks aim to achieve macroeconomic objectives such as price stability, full employment, and sustainable economic growth. For example, during economic downturns, central banks may lower interest rates to stimulate borrowing and spending, thereby boosting economic activity.
- Price Stability: One of the primary objectives of central banks is to maintain price stability. When prices are stable, businesses and consumers can make economic decisions with greater certainty, which promotes investment, consumption, and overall economic growth. Central banks typically target a low and stable rate of inflation as part of their monetary policy framework.
- Financial Stability: Central banks play a critical role in safeguarding the stability of the financial system. They monitor financial institutions, assess risks, and implement regulations to mitigate systemic risks such as bank failures or asset bubbles. A stable financial system promotes confidence among investors and fosters the efficient allocation of capital, which is essential for long-term economic growth.
- Lender of Last Resort: Central banks act as lenders of last resort, providing liquidity to financial institutions facing temporary funding shortages or liquidity crises. By providing emergency funding, central banks help prevent financial panics and maintain the smooth functioning of the financial system, which is vital for sustaining economic activity.
- Currency Issuance and Management: Central banks are responsible for issuing and managing the nation’s currency. They ensure the integrity and stability of the currency, which is essential for facilitating transactions and promoting economic activity both domestically and internationally.
- Regulatory Oversight: Central banks regulate and supervise financial institutions to ensure they operate safely and soundly. This oversight helps prevent fraud, misconduct, and excessive risk-taking, which can destabilize the financial system and hinder economic growth.
- Promoting Financial Inclusion: Central banks often work to promote financial inclusion, ensuring that all segments of society have access to basic financial services. By expanding access to banking and credit, central banks can help individuals and businesses participate more fully in the economy, fostering inclusive economic growth.
Overall, central banks play a crucial role in fostering economic growth by maintaining price stability, ensuring financial stability, and implementing policies that support sustainable economic activity.