Project Topic:

THE ROLE OF CENTRAL BANK IN STABLISING NIGERIA ECONOMY (A CRITICAL REVIEW)

Project Information:

 Format: MS WORD ::   Chapters: 1 - 5 ::   Pages: 52 ::   Attributes: Questionnaire, Data Analysis, Abstract  ::   1,512 people found this useful

Project Department:

BANKING FINANCE UNDERGRADUATE PROJECT TOPICS, RESEARCH WORKS AND MATERIALS

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ABSTRACT

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.

 

CHAPTER ONE

1.1     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   malpractes   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

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