Role Of Central Bank Of Nigeria In The Regulation Of Nigeria Economy Through Monetary Policy
(A Case Study Of Central Bank Of Nigeria Enugu Branch)
The Central Bank of Nigeria (CBN) plays a critical role in overseeing and regulating the Nigerian economy through its implementation of monetary policy. Through mechanisms such as interest rate adjustments, reserve requirements, and open market operations, the CBN aims to influence the availability and cost of credit in the economy, thereby managing inflation, promoting economic stability, and fostering sustainable growth. By adjusting the money supply and regulating the financial system, the CBN seeks to balance the objectives of price stability, exchange rate stability, and full employment. Additionally, the CBN monitors and supervises commercial banks and other financial institutions to ensure compliance with regulatory frameworks, safeguarding the integrity and stability of the financial system. Through its proactive approach to monetary policy formulation and implementation, the CBN serves as a key driver of economic regulation and stability in Nigeria, fostering confidence among investors and supporting long-term development objectives.
The study was done to ascertain the role which central bank of Nigeria played in the regulation of Nigeria economy through monetary policy.
Among the goals of economic stabilization the most important is to achieve full employment, price stability, balance of payments and exchange rate stability, hence monetary policy through central bank of Nigeria.
To solve the research problem, primary and secondary data were collected. The research instruments used in collection the data were questionnaires and oral interview. The respondents comprised of the top business executives both private and public servants.
In organizing and presenting data collected, tables and percentages were used questionnaires.
Data analysis and interpretation gave the following findings:
1. Most respondents were of the opinion that corruption and political instability hinders economic growth of Nigeria.
2. Respondents showed that central bank is not doing enough in the regulation of Nigeria economy.
3. 76 respondents maintained that the economy of the country is in a state of near collapse.
Title page ii
Approval page iii
Acknowledgement iv
Abstract v
Table of contents vi
CHAPTER ONE
1.0 Introduction 1
1.1 Background of the study 1
1.2 Statement of problem 4
1.3 The purpose of the study 5
1.4 Scope of the study 5
1.5 Research questions 6
1.6 Significance of the study 6
1.7 Definition of terms 7
CHAPTER TWO
2.0 Literature review 9
2.1 Meaning of bank 9
2.2 Brief history and meaning of CBN 11
2.3 Objectives and functions of CBN 16
2.4 The role of central bank in economic development 22
2.5 Regulatory monetary policy of CBN 26
2.6 The problems of Nigeria economy 34
CHAPTER THREE
3.0 Methodology 40
3.1 Research design 40
3.2 Area for the study 40
3.3 Population for the study 41
3.4 Sample and sampling procedure 41
3.5 Instrument for data collection 42
3.6 Validity of the instrument 42
3.7 Reliability of the instrument 43
3.8 Method of data administration of the instrument 43
3.9 Method of data analysis 44
CHAPTER FOUR
4.0 Presentation and analysis of data 45
CHAPTER FIVE
5.0 Summary of findings, recommendations and conclusion 53
5.1 Summary of findings 53
5.2 Conclusion 54
5.3 Recommendation 56
5.4 Limitations of the study 57
Reference 59
Appendix 61
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The development of central banking can be said to date from the middle of the 19th century. But precisely there is no exact data when banking started in Nigeria. Historically, records showed that domestic banking activities started in 1961, when a shipping company Elder Dempter Lines started banking services in Lagos the chairman of the company in 1392 established the first banking institution called African Banking Corporation, which metamorphosed, into First Bank of Nigeria. In 1917, Barchays banks now known as Union Bank of Nigeria Plc was established.
Before 1952, the West African Currency Board (WACB) established I 1912 was used as the state banks for Anglo-phone West African Countries, such as Nigeria, Serra-Leone. Ghana and Gambina. The West African Currency Board (WACB) was based in London and it issued notes and coins for the Anglo-phone West African countries.
The banking failure of the 1950’s could not but lead to the establishment of Central Bank to serve as banker to the banking system, to perform supervisory role over the commercial banks and issue currency notes and coins thus, regulating the supply of money in Nigeria. Not only these, it acts as financial adviser to the government on monetary policy and implementing the policy on behalf of the government.
The central bank of Nigeria is government bank, established to keep a country’s financial system under control and close supervision. The responsibility of managing the central bank of Nigeria is vested in the hand of the board of directors whose members are appointed by the government.
The central bank of Nigeria is expected particularly in promoting economy growth by fostering the development of money and capital market; develop banking habits and sound financial system. In order to facilitate economy development, central bank of Nigeria 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 promotion agricultural and industrial development in general.
Central Bank of Nigeria was established to act as the organ of government that should undertake the major financial operations of the government and by its conduct influence the behaviour of financial institutions so as to support the economic policy of the government. It follows therefore that the central banks of Nigeria must in some sense be a part of the government machinery with its action clearly co-ordinated with those of other executive branch of government.
Argument has been advanced for the complete independence of the central bank of Nigeria; so far this has not been achieved as there is no country where the central bank is completely free from government intervention.
There is no gainsaying in the fact that the role played by the central banks of Nigeria is establishing Nigerian economy through monetary policy is an enormous one.
Since it inception in 1958, it has engaged in one stabilizing role or the other, that is direct or indirect monetary policy.
1.2 STATEMENT OF PROBLEMS
The wind of change economically which is more pronounced in the development countries, especially Nigeria. In attainment stability in the economy of Nigeria the central bank of Nigeria is faced with many problems.
These problems include:
(a) In Nigeria, the banking habit is still not widespread.
(b) Our money market and capital market are not well developed.
(c) The failure of central bank in putting the non-bank financial intermediaries under it.
(d) Political instability
(e) Government policy
(f) Administrative bottleneck
Dependence in agricultural sector, unemployment, poor standard of living and low income per capital are the major problems facing Nigerian economy.
1.3 PURPOSE OF THE STUDY
Every research work is aimed at solving a specific purpose. The purpose of this research is to:
(i) To identify the problems inhabiting the growth, development and stabilization of Nigerian economy.
(ii) To identify the roles of central bank in economic development.
(iii) To identify the various regulatory policies of the central bank of Nigeria through monetary policy.
(iv) To make appreciable recommendation that would enhance the Nigeria economy through central bank monetary policies.
(v) To make available suggestions on how to reduce, if possible remove entirely those problems facing Nigeria economy so as to ensure maximum economic development in Nigeria.
1.4 SIGNIFICANCE OF THE STUDY
The study of the role of central bank in the regulation of Nigeria economy through monetary policies with particular focus on Enugu state will be of immense benefit to both the private and public sectors of the Nigeria economy.
Student’s captains of industries, political office holders, National Assembly members, and infact, the general public will benefit a lot from this study. Investors, especially those who trade on government securities will also benefit a lot.
Foreign investors who are always eager to see a stable and viable economy will find this study very beneficial.
1.5 SCOPE OF THE STUDY
This study covers the role central bank of Nigeria plays in the economic development of Nigeria using the measures know as monetary policies.
1.6 RESEARCH QUESTIONS
The following research questions were formulated to get to the indept of the topic and also based on the statement of problems.
1. Identify some of the problems you think that militate against the economy Nigeria
2. What role, if any does the central bank play in the development of the Nigeria economy?
3. Do you think that the central bank is doing enough in regulating the economy?
4. What policies does the central bank employ in regulating the economy?
5. Can the efforts of the central bank be improved upon? If yes, how?
6. Do you think that in controlling other financial institutions, the central bank is also controlling the Nigeria economy?
7. How would you rate the Nigeria economy at present?
1.7 DEFINITION OF TERMS
The operational definitions of some technical terms employed in this research work are given below:
ECONOMY: The use of available resources is a way that saves money, time and avoids or minimizes waste.
BANK: As a place where money and other valuable things are kept for safety purposes.
CURRENCY: Money used in country as a medium of exchange.
OPEN MARKET OPERATION: Is the buying and selling of government securities by the central bank to the public through commercial banks.
MONETARY POLICY: The control of money in a country.
Role Of Central Bank Of Nigeria In The Regulation Of Nigeria Economy Through Monetary Policy:
The Central Bank of Nigeria (CBN) plays a crucial role in the regulation of Nigeria’s economy through its implementation of monetary policy. Monetary policy refers to the management of the money supply and interest rates by a central bank to achieve specific economic objectives. The CBN’s primary objective is to maintain price stability, but it also aims to promote economic growth and maintain financial system stability. Here’s how the CBN carries out its role in regulating the Nigerian economy through monetary policy:
- Control of Money Supply: The CBN has the authority to control the money supply in the economy. It does this by influencing the quantity of money circulating in the economy through various tools. By adjusting the money supply, the CBN can impact inflation rates and overall economic activity.
- Interest Rate Management: The CBN sets and manages key interest rates, such as the monetary policy rate (MPR), which serves as a benchmark for other interest rates in the economy. By raising or lowering the MPR, the CBN can influence borrowing costs for individuals, businesses, and banks. Lowering the interest rate can encourage borrowing and spending, stimulating economic growth, while raising the rate can help control inflation.
- Open Market Operations (OMOs): The CBN conducts OMOs by buying or selling government securities in the open market. When the CBN sells these securities, it absorbs money from the market, reducing the money supply. Conversely, when it buys securities, it injects money into the market. This tool helps the CBN manage liquidity in the banking system and influence short-term interest rates.
- Reserve Requirements: The CBN sets reserve requirements, which are the minimum amounts of funds that banks are required to hold in reserve against their deposits. By adjusting these requirements, the CBN can influence the amount of money that banks can lend out, affecting overall money supply and credit availability.
- Foreign Exchange Market Intervention: The CBN also manages the foreign exchange market to stabilize the country’s exchange rate. It may intervene by buying or selling foreign currency to maintain a stable exchange rate and prevent excessive fluctuations that could impact the economy.
- Credit Control: The CBN uses credit control measures to influence the allocation of credit in the economy. It can impose credit ceilings or sectoral credit guidelines to direct credit towards specific sectors deemed important for economic development.
- Macroprudential Regulation: Apart from its monetary policy role, the CBN also regulates and supervises the financial system to ensure its stability. This involves setting prudential regulations for banks and financial institutions to prevent excessive risk-taking and maintain the integrity of the financial sector.
- Communication and Transparency: The CBN communicates its policy decisions, objectives, and economic assessments to the public and financial markets. This transparency helps guide market expectations and allows stakeholders to make informed decisions.
By effectively implementing these monetary policy tools, the Central Bank of Nigeria aims to achieve its objectives of maintaining price stability, promoting economic growth, and ensuring the stability of the financial system in Nigeria.